What does the rate of return measure in investment?

The rate of return measures the percentage of investment that is recouped after each year, reflecting the profitability of an investment relative to its initial cost. This metric helps investors assess how well their investments are performing over a specified timeframe, typically expressed as a percentage.

By calculating the rate of return, investors can evaluate the effectiveness of their investment strategies and make informed decisions about where to allocate their financial resources. It essentially provides a clear picture of how much gain or loss has occurred due to the investment, allowing for a comparison between different investment options and their relative performances.

In assessing options, others may focus on various aspects of investment values or losses, but do not encapsulate the essence of return as seen in this correct answer. The rate of return focuses specifically on the profitability aspect, providing a more comprehensive understanding of the financial outcome of an investment over time.