rate of return

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The annual amount of income from an investment, expressed as a percentage of the original investment. This rate is very important in assessing the relative merits of different investments. It is therefore important to note whether a quoted rate is before or after tax, since with most investments, the after-tax rate of return is most relevant. Also, because some rates are payable more frequently than annually, it may be important, in order to make true comparisons, to consider the annual percentage rate (APR), which most investment institutions are required to state by law. See also risk-free rate.

Subjects: Financial Institutions and Services.

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