1. What is Annual Return on Investment?

Annual Return on Investment (ROI) is a financial metric that measures the percentage gain or loss on an investment over a one-year period. It helps investors evaluate the performance and profitability of their investments.

2. How Does the Calculator Work?

The calculator uses the annual return formula:

Where:

• Final Value — Ending value of the investment ($)
• Initial Value — Starting value of the investment ($)
• Years — Investment period in years

Explanation: The formula calculates the average annual percentage return by dividing the total return by the initial investment and the number of years.

3. Importance of Annual Return Calculation

Details: Calculating annual return helps investors compare different investment opportunities, assess performance over time, and make informed financial decisions about portfolio management.

4. Using the Calculator

Tips: Enter the initial investment amount in dollars, final investment value in dollars, and the investment period in years. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What is a good annual return rate?
A: A good annual return depends on the investment type and risk tolerance. Generally, 7-10% is considered good for stock investments, while 2-5% is typical for bonds.

Q2: Does this calculator account for compounding?
A: No, this formula calculates simple annual return. For compound annual growth rate (CAGR), a different formula would be used.

Q3: Can annual return be negative?
A: Yes, if the final value is less than the initial value, the annual return will be negative, indicating a loss on the investment.

Q4: How does this differ from total return?
A: Total return shows the overall gain/loss percentage, while annual return shows the average yearly performance.

Q5: Should I include dividends in the final value?
A: Yes, for accurate calculation, the final value should include all returns such as capital gains, dividends, and interest earned.