Chapter 7: Rate of Return One Project

• Understand meaning of ROR

• Calculate ROR for cash flow series
• Understand difficulties of ROR
• Determine multiple ROR values
• Calculate External ROR (EROR)
• Calculate r and i for bonds
Interpretation of ROR
• Rate of return (ROR) is the rate paid on the unpaid balance of
borrowed money, or the rate earned on the unrecovered balance of
an investment, so that the final payment or receipt brings the
balance to exactly zero with interest considered.
• ROR equation can be written in terms of PW, AW, or FW.
• Numerical value can range from -100% to infinity. (In terms of an
investment, a return of i =100% means the entire amount is lost).
Example
Example
Example
Example