Annual Rate Return Calculator

Annual Rate of Return Calculator

What is the Annual Rate of Return?

The Annual Rate of Return (ARR), often referred to as the Compound Annual Growth Rate (CAGR) when considering multiple periods, is a metric used to measure the profitability of an investment over a specified period. It represents the average annual profitability of an investment, expressed as a percentage. This calculation is crucial for comparing the performance of different investments or for understanding how an investment has grown over time.

The formula for the Annual Rate of Return, especially when considering the compounding effect over multiple years, is:

ARR = [ (Final Investment Value / Initial Investment Value) ^ (1 / Number of Years) ] – 1

For a single year (time period = 1), the formula simplifies to:

ARR = ( (Final Value – Initial Value) / Initial Value ) * 100%

This calculator helps you quickly determine the annual rate of return for your investments.

Example Calculation:

Let's say you invested $10,000 (Initial Investment Value) in a stock. After 3 years, the value of your investment grew to $15,000 (Final Investment Value).

Using the calculator:

• Initial Investment Value: 10000
• Final Investment Value: 15000
• Time Period (Years): 3

The calculation would be: ARR = [ (15000 / 10000) ^ (1 / 3) ] – 1 ARR = [ (1.5) ^ (0.3333) ] – 1 ARR = [ 1.1447 ] – 1 ARR = 0.1447 As a percentage, this is approximately 14.47%. This means your investment grew, on average, by 14.47% each year over the three-year period.