Annual Return over an Investment

The annual rate of return is the return that an investment provides a business over a period of one year or annually. The annual return is shown in a time weighted percentage that is spanned over a period of one year. There are a number of different kinds of sources of return such as the dividends, return on capital investment and capital appreciation is also included in annual return over investment. The representation of annual return is depicted in the form of geometrical mean as compared to other calculations that are often shown in the form of arithmetic mean. The annual return rate is measured on the initial investment that is made by the business in the beginning of the business operations.

The example of annual return on an investment can be measured as following example. Assume that an investor purchases an investment of dollar 1000 at January, 2000 and sell this investment at dollar 1500 over a profit of dollar 500 along with a total dividend of 200 dollars over a holding period of total five years. The total return of the investor in this case is equal to 2000 dollars. The total return on the investment for can be calculated as

Total Return = 1000/2000 = 50 percent

The values of annual rate can be used in calculating different financial values such as compound annual growth rate that can be calculated with the help of formula.

CAGR = Beginning Value of Investment/ Ending value of Investment x 1/Number of years of investment-1

Other Related Accounting Articles:

• Compound Annual Growth Rate
• Target Return
• Annual Percentage Rate
• Mean Variance Analysis
• The Cost Method of Investment Accounting
• Compounding
• Simple Rate of Return Definition
• Return on Capital Employed
• Fixed Income Security
• Annuity Ladder