How to Calculate Annual Return With Stock Prices
Original post by Mark Kennan of Demand Media
The annual return on an investment can be calculated based on the starting and ending prices. Unless you held the stocks for precisely one year, you have to figure the effects of interest compounding into your annual return. In addition to the stock prices, you also need to know the term for which you held the stock. However, when you use just the stock prices, you do not account for the returns generated by dividend payments.
Divide the closing value of the stock by the starting value of the stock. For example, if a stock started at $23.50 and grew to $29.20, divide $29.20 by $23.50 to get 1.242553191.
Compute 1 divided by the years the change in the stock price took place. For example, if you held the stock for 9 months, divide 1 by 0.75 to get 1.333333.
Raise the ratio of the closing price to the beginning price to the power of 1 divided by the term. A scientific calculator is usually needed. In this example, enter 1.242553191, push the "^" key, enter 1.333333 and push equals to get 1.335836444.
Subtract 1 from the result to find the annual return rate. In this example, subtract 1 from 1.335836444 to get 0.335836444.
Convert the annual return rate as a decimal to a percent by multiplying it by 100. Completing this example, multiply 0.335836444 by 100 to find the annual rate of return from the stock prices equals about 33.58 percent.
- Stanford University; CAGR (Compound Annual Growth Rate); Michael Fan; 2006
- DePaul University: Compound Interest Formula
- University of Arizona: Compound Interest and APY
About the Author
Mark Kennan is a freelance writer specializing in finance-related articles. He has worked as a sports editor for "Ring-Tum Phi" and published articles on a number of online outlets. Kennan holds a Bachelor of Arts in history and politics from Washington and Lee University.