Annual Compound Rate of Return Calculator
Understanding the Annual Compound Rate of Return
The Annual Compound Rate of Return (ACRR), often referred to as the Compound Annual Growth Rate (CAGR), is a powerful metric used to measure the average annual growth of an investment over a specified period, assuming that profits are reinvested each year. It smooths out volatility and provides a more realistic picture of an investment's performance than simple average returns.
Why is ACRR important?
- Consistency: It shows how consistently an investment has grown over time.
- Comparison: It allows for easy comparison between different investments with varying growth patterns.
- Planning: It's crucial for financial planning and setting realistic future investment goals.
How is ACRR calculated?
The formula for ACRR is:
ACRR = ( (Final Value / Initial Investment)^(1 / Number of Years) ) - 1
In this calculator, we use:
- Initial Investment Amount: The starting capital invested.
- Final Value of Investment: The total value of the investment at the end of the period.
- Number of Years: The total duration of the investment in years.
Example Calculation:
Let's say you invested $10,000 (Initial Investment) and after 5 years (Number of Years), your investment grew to $15,000 (Final Value).
Using the formula:
ACRR = (($15,000 / $10,000)^(1 / 5)) – 1
ACRR = (1.5^(0.2)) – 1
ACRR = 1.08447 – 1
ACRR = 0.08447
Therefore, the Annual Compound Rate of Return is approximately 8.45%.
function calculateCompoundReturn() {
var initialInvestment = parseFloat(document.getElementById("initialInvestment").value);
var finalValue = parseFloat(document.getElementById("finalValue").value);
var numberOfYears = parseFloat(document.getElementById("numberOfYears").value);
var resultElement = document.getElementById("result");
if (isNaN(initialInvestment) || isNaN(finalValue) || isNaN(numberOfYears)) {
resultElement.innerHTML = "Please enter valid numbers for all fields.";
return;
}
if (initialInvestment <= 0 || finalValue <= 0 || numberOfYears <= 0) {
resultElement.innerHTML = "Initial Investment, Final Value, and Number of Years must be greater than zero.";
return;
}
if (finalValue < initialInvestment) {
resultElement.innerHTML = "Your investment has decreased in value.";
}
var compoundReturn = Math.pow((finalValue / initialInvestment), (1 / numberOfYears)) – 1;
var percentageReturn = compoundReturn * 100;
resultElement.innerHTML =
"
Your Results:
" +
"
Annual Compound Rate of Return (ACRR): " + percentageReturn.toFixed(2) + "%";
}
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