Calc Short for Calculator

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Reviewed by: David Chen, CFA
This calculator uses time-tested financial mathematics to ensure accuracy.

The Annualized Return Calculator helps you determine the compounded rate of return on an investment over a specific period, providing a clear, apples-to-apples comparison between different investment options.

Annualized Return Calculator

The missing variable is:
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Annualized Return Calculator Formula

Annualized Return (R) = $\left(\frac{FV}{PV}\right)^{1/T} – 1$ Formula Source: Investopedia

Where FV is Future Value, PV is Present Value, and T is Time in Years. The calculator can solve for any of these variables.

Variables:

  • Present Value (PV): The initial amount of money invested or the starting principal.
  • Future Value (FV): The final balance after the investment period, including all returns.
  • Time (T): The total duration of the investment in years.
  • Annualized Return Rate (R): The compounded rate of return earned per year over the period.

What is Annualized Return Calculator?

The Annualized Return Calculator is an essential tool for investors to assess the true performance of an investment over multiple years. Unlike simple return, which is the total profit over the entire period, the annualized return (also known as Compound Annual Growth Rate or CAGR) smooths out the return into an equivalent yearly rate.

This allows for a standardized and fair comparison of different investments regardless of their duration. For instance, comparing a 5-year investment with a 10-year investment is only meaningful when you look at the Annualized Return, as it shows what you made per year on average, compounded.

How to Calculate Annualized Return (Example)

  1. Define Variables: Suppose you invested $20,000 (PV) and after 7 years (T), the investment grew to $35,000 (FV).
  2. Apply Formula: $R = (\frac{\$35,000}{\$20,000})^{1/7} – 1$
  3. Simplify the Ratio: $R = (1.75)^{0.142857} – 1$
  4. Calculate: $R \approx 1.0844 – 1 \approx 0.0844$
  5. Convert to Percentage: The Annualized Return is approximately 8.44%.

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Frequently Asked Questions (FAQ)

What is the difference between Simple Return and Annualized Return?

Simple return is the total percentage gain or loss over the entire investment period. Annualized return converts this total return into a compounded yearly rate, making it the standard metric for comparison.

Can the Annualized Return be negative?

Yes. If your Future Value (FV) is less than your Present Value (PV), it means your investment lost value over the period, resulting in a negative annualized rate of return.

What is CAGR?

CAGR stands for Compound Annual Growth Rate, and it is another term for Annualized Return. It assumes all profits are reinvested and demonstrates the smooth rate of growth over time.

Why does the calculator require at least three inputs?

The formula for compound growth involves four main variables. To solve for one unknown, the other three must be provided. For example, you cannot calculate the rate (R) without knowing the starting value (PV), ending value (FV), and time (T).

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