How To Calculate

Learn how to calculate anything
Menu
  • bmi
Home
rate
How to Calculate Annual Rate of Return.
rate

How to Calculate Annual Rate of Return.

Rosemary Njeri

In this article, we will define and discuss how to calculate annual rate of return(ROR) but before that, lets define it. ARR is the amount earned on an investment over a 12-month period, and is usually expressed as a percentage. That percentage can be positive or negative, depending on the amount gained or lost compared to the principal.

When we report the annualized return of a particular investment, there is a principle that it must adhere to and it is;

  • An investment cannot report its performance to be annualized if it has not been in existence for less than one year. We use this principle to keep funds from reporting a predicted performance instead of reporting facts.

ARR does not take into consideration the potential effects of compounding over many years. It is limited by not including a growth component. But as a single period rate, it does serve its purpose.

We mainly use ARR as a general comparison between multiple projects to determine the expected rate of return from each project.

Formula to Calculate Annual Rate of Return.

 Calculate Annual Rate of Return.

Example:

Suppose the beginning value of an investment was $ 300,000 and its current value is $500,000. If the investment was to last for 5 years, find the annual rate of return.

 Calculate Annual Rate of Return.

Thus, the annual rate of return is 10.6%.

Share
Tweet
Reddit
Pinterest
Email
Prev Article
Next Article

Related Articles

How to Calculate NPS.
NPS is short for net promoter score. The Net Promoter …

How to Calculate NPS.

Formula to Calculate Drip Rate.
A drip is a small individual drop of a liquid. …

Formula to Calculate Drip Rate.

Popular Posts

    Categories

    learntocalculate.com is a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for sites to earn advertising fees by advertising and linking to amazon.com.

    How To Calculate

    Learn how to calculate anything

    Pages

    • About Us
    • Contact Us
    • Privacy Policy
    Copyright © 2025 How To Calculate

    Ad Blocker Detected

    Our website is made possible by displaying online advertisements to our visitors. Please consider supporting us by disabling your ad blocker.

    Refresh