Annualized Rate of Return Calculator

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What Is an Annualized Rate of Return?

Let's consider an investment (such as a stock portfolio) that goes from $1,000 to $1,331 in 3 years. The annualized rate of return (also known as compound annual growth rate or CAGR) is the yearly interest rate that would yield the same increase in value over the same period of time. In this example, it would be 10%, as explained below:

How to Calculate the Annualized Rate of Return?

If we generalize the previous example, we arrive at the following equation:

where F is the final value, I is the initial value, A is the annualized rate of return, and Y is the number of years the investment was held. This equation solves to:

When to Use the Annualized Rate of Return?

Here are some situations where knowing the annualized rate of return can be useful:

Tips and Tricks

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