How to Calculate Annual Percentage Returns on Stocks
Original post by C. Taylor of Demand Media
Calculating your stock's annual percentage return describes the investment's performance and allows you to compare its return with other opportunities. What complicates this calculation is stocks are rarely held for exactly one year, which means the basic return calculation only describes the return over the time period you held the stock. This does not allow an unbiased comparison with other annual interest rates. Annualizing the return rate makes it comparable to other investments.
Divide the selling price of the stock by the purchase price to calculate the gain factor. As an example, if you purchased the stock for $50 per share and sold it 60 days later for $52 per share, then the gain factor would be 1.04.
Divide 365 by the number of days you held the stock. It does not matter if you held the stock for less than or more than a year. In the example, 365 divided by 60 gives you 6.0833 compounding periods in the year.
Raise the gain factor to the power of the number of compounding periods to calculate the annual gain factor. In the example, you would raise 1.04 to the power of 6.0833 to get 1.2695.
Subtract 1 to get the annual return. In the example, your stock's annualized return would be 0.2695, or 26.95 percent.
- All Financial Matters; How to Calculate Annualized Rate of Return; JLP; June 30, 2005
- Gummy Stuff: Calculating Annualized Return
About the Author
C. Taylor has been a professional writer since 2009. He has written for online publications and the "Journal of Asian Martial Arts." Taylor specializes in martial arts, traveling, sciences and computer repair. He received a Master of Science in wildlife biology from Clemson University and a Bachelor of Arts in biological sciences from the College of Charleston.