The investment company provides its clients with the latest return on investment (ROI) developments on a regular basis. If you own an investment, it is likely that you will receive a quarterly report showing the progress of your investment over the last 3 months. It's easier to determine the strength of your investment (and to compare it to other investments) if you convert quarterly to annual returns. You just need to prepare stationery and calculator.
Step
Method 1 of 3: Finding Information
Step 1. Get your investment quarter report
This data is usually sent by physical or electronic mail. You may also be able to find them on the company website.
Step 2. Find the quarterly rate of return
In the report there will be numbers showing the rate of increase or decrease in investment during the period. The number that needs to be annualized is the rate of return (ROR), which shows the percentage growth (or depreciation) received over the last three months.
For example, at the base of the page number might be listed the quarterly rate of return is 1.5%. The annual rate of return will be greater because your investment can be expected to have grown each quarter. The annual rate of return on an investment is its percentage growth if the investment grows at the same rate throughout the year
Step 3. Count the number of periods in a year
To annualize your investment, you first need to consider the time in the calculated period. Because in this case the report is received quarterly, the current period is three months. After that, calculate how many periods there are in a year. A year has 12 months, therefore the number of periods in a year is 12/3 = 4 periods. Use the number 4 in the annual formula.
If you are trying to annualize the monthly reward, use the number 12
Method 2 of 3: Calculating Annual Rate of Return
Step 1. Calculate the annual rate of return
For quarterly investments, the formula is: Annual Rate of Return = [(1 + Quarterly Rate of Return)^4] – 1. The number 4 is the exponent. In other words, the sum of “1 + quarterly rate of return” is raised to the power of four and then the result is subtracted by 1.
Step 2. Convert the quarterly rate of return to a decimal number
Assuming the quarterly rate of return is 1.5%, divide 1.5 by 100 = 0.015.
Step 3. Enter your numbers
Continuing the example above, use 0.015 as the annual rate of return. Thus, the annual rate of return is (1 + 0.015) to the fourth power.
Add 1 to 0.015 and the result is 1.015
Step 4. Use a calculator to square the numbers
If you don't have a calculator with an exponent, you can find one online or at an office supply store. The value of 1.015 to the power of 4 is 1.061364.
- If you don't have a calculator, simply multiply 1.015 x 1.015 x 1.015 x 1.015.
- The formula in the example now looks like this: Annual Rate of Return = 1.061364 – 1.
Step 5. Subtract 1 from the previous result
1.061364 – 1 is 0.061364. This is the number of the annual rate of return in decimal form. Multiply the decimal number by 100 to get the percentage form.
From the example above, 0.061364 x 100 = an annual rate of return of 6.1364%
Method 3 of 3: Yearning the Daily Reward
Step 1. Calculate the rate of return using days
You may be new to investing and want to know your Annual Rate of Return in days instead of months. For example, let's say you invest for 17 days and earn a reward of 2.13%.
Step 2. Plug the numbers into the formula
In this example, to determine the exponent to use, you need to divide 17 (investment period) by 365 (number of days in a year). The result is 0.0465753.
- Convert 2.13% to a decimal number = 2.13/100 = 0.0213.
- Your formula should look like this: ((1+0, 0213)^1/0, 0465753)-1 = annual reward rate. ((1, 0213)^21, 4706078)-1 = 1.5722717 – 1 = 0.5722717. Convert this number to a percentage of 0.5722717 x 100 = 57.23% annual rate of return.
Step 3. Be careful when annualizing the rate of return
You cannot assume that the rate of return earned will remain the same throughout the year. Stock earnings go up and down every day but this way you can make general projections.
