What is a Compound Annual Return?
The compound annual return has to do with the amount of growth that is achieved by an investment within a calendar year. Also known as an average annual return, the calculation takes into consideration any and all activity involving the investment during the period cited. Generally reported as a percentage, the compound annual return can also be calculated using an assumed constant rate, although it is possible to allow for variations in the rate during the twelve month period under consideration. One of the important functions of calculating the compound annual return is to assess the rate of annual return on a given investment. Using the historical data on hand, it is possible to ascertain the worth of continuing to hold onto the investment. This can be accomplished by comparing the compound annual return for the most recently completed year with the percentage return of previous years. If the rate of interest and other factors tend to allow the investment to generate a return that i
