1. What is Annual Percentage Return?

Annual Percentage Return is the geometric average amount of money earned by an investment each year over a given time period. It shows what an investor would earn over a period of time if the annual return was compounded.

2. How Does the Calculator Work?

The calculator uses the Annual Percentage Return formula:

Where:

• \( \text{Total Return} \) — The total return over the investment period (as a decimal)
• \( \text{years} \) — The number of years the money was invested

Explanation: The formula calculates the compound annual growth rate (CAGR) that would give you the specified total return over the investment period.

3. Importance of Annual Percentage Return

Details: Annual Percentage Return is important for comparing investments of different durations. It standardizes returns to an annual period, making it easier to compare investments that were held for different lengths of time.

4. Using the Calculator

Tips: Enter total return as a decimal (e.g., 0.5 for 50% return) and the number of years the money was invested. Both values must be valid (total return ≥ 0, years > 0).

5. Frequently Asked Questions (FAQ)

Q1: How is this different from simple annual return?
A: Simple annual return divides total return by years, ignoring compounding. Annual Percentage Return accounts for compounding effects.

Q2: What's considered a good Annual Percentage Return?
A: This depends on the asset class. Historically, stocks average 7-10%, bonds 3-5%, but this varies by market conditions.

Q3: Can this be negative?
A: Yes, if your total return is negative (you lost money), the Annual Percentage Return will be negative.

Q4: Does this account for inflation?
A: No, this is the nominal return. For real return, you'd need to adjust for inflation separately.

Q5: How does this relate to the Rule of 72?
A: The Rule of 72 estimates doubling time (72/Annual Percentage Return), showing how compounding affects growth.