Annualized Rate

Annualized rate is a rate of return for a given period that is less than 1 year, but it is computed as if
the rate were for a full year. It is essentially an estimated rate of annual return that is extrapolated
mathematically. The annualized rate is calculated by multiplying the change in rate of return in one
month by 12 (or one quarter by four) to get the rate for the year. Annualized rate of return is
computed on a time-weighted basis.
For example, if one month's rate of return is 0.21% and the next month's is 0.29%, the change in the
rate of return from one month to the next is 0.08% (0.29-0.21). The annualized rate of return is equal
to 0.08% x 12 =0.96%. But the more accurate way is to calculate geometric average rate of return.
Annualized rate of return (geometric average) is calculated as follows:

WhereEquals
Ra

Annualized rate of return

Rc

Cumulative rate of return

P
N

Periodicity (number of time periods in a year:

4 for quarterly data, 12 for monthly data, 365 for days)
Number of time periods in observed diapason