How to calculate annualized return

Annualized return is a measure used in finance to assess the performance of an investment over a certain period of time. It represents the average annual rate of return on an investment over a specific period of time, typically expressed as a percentage. To calculate the annualized return, you need to know the initial investment amount, the ending investment value, and the time period for which the return is being calculated. The formula for annualized return is: Annualized Return = ((Ending Value / Beginning Value) ^ (1 / Number of Years)) - 1 Where: - Ending Value = the value of the investment at the end of the period - Beginning Value = the initial investment amount - Number of Years = the total number of years the investment was held For example, if you invested $10,000 and at the end of 5 years, the investment grew to $15,000, the annualized return would be calculated as follows: Annualized Return = (($15,000 / $10,000) ^ (1 / 5)) - 1 = (1.5 ^ 0.2) - 1 = 1.095 - 1 = 0.095 or 9.5% This means that the investment had an annualized return of 9.5% over the 5-year period. It's important to note that the annualized return takes into account the compounding effect of the investment over time, providing a more accurate measure of the investment's performance. This makes it a useful tool for comparing the performance of different investments or assessing the overall performance of a portfolio.