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The rate of return is the percentage gain or loss of an investment over a period of time. Rate of return is often expressed as an annual percentage; for example, an annual rate of return of 5 percent means the investment gained 5 percent over a twelve month period.
The rate of return is based on the change in value of the underlying asset, adjusted for payouts. A bond, for example, has a rate of return equal to the total interest paid by the bond adjusted for changes in price of the bond itself. The rate of return of a stock is the change in price adjusted for any dividends. With mutual funds and other pooled investments, the rate of return must also account for any capital distributions.
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