LO 4.1.4: Calculate the rate of return (I/YR) for a situation.

Question 1

What are we solving for with Rate of return (I/YR)

Answer 1

The interest rate / rate of return per year

Question 2

Another name for interest rate calculation

Answer 2

Annual rate of return calculation

Question 3

Why are interest rate calculations important for investments

Answer 3

• Comparing performance of one portfolio manager to another
• Comparing performance to a given benchmark, such as S&P 500
• Uneven cash flow calculations, such as NPV and IRR