1. What is Mean Rate of Return?

The Mean Rate of Return (Mean ROR) is a financial metric that calculates the average return on an investment over multiple periods. It provides a simple measure of investment performance by averaging the periodic returns.

2. How Does the Calculator Work?

The calculator uses the Mean Rate of Return formula:

Where:

• \( \sum (\text{Returns}) \) — Sum of all returns over the periods
• \( n \) — Number of periods
• Returns — Periodic returns expressed as percentages

Explanation: The formula calculates the arithmetic mean of all periodic returns, providing a straightforward average performance measure.

3. Importance of Mean ROR Calculation

Details: Mean ROR is essential for comparing investment performance, assessing portfolio returns, and making informed investment decisions. It helps investors understand the average periodic performance of their investments.

4. Using the Calculator

Tips: Enter returns as comma-separated percentages (e.g., "5, 8, -2, 12") and specify the number of periods. Ensure the number of returns matches the number of periods specified.

5. Frequently Asked Questions (FAQ)

Q1: What is the difference between Mean ROR and Annualized Return?
A: Mean ROR calculates simple arithmetic average, while annualized return accounts for compounding effects over time.

Q2: When should I use Mean ROR?
A: Use Mean ROR for quick performance comparisons and when returns are relatively stable over time.

Q3: What are the limitations of Mean ROR?
A: Mean ROR doesn't account for volatility, compounding, or the sequence of returns, which can be important for long-term investments.

Q4: Can Mean ROR be negative?
A: Yes, if the sum of returns is negative, the Mean ROR will be negative, indicating an average loss over the periods.

Q5: How does Mean ROR compare to Geometric Mean?
A: Geometric mean provides a more accurate measure for compounded returns, while Mean ROR gives a simple arithmetic average.