How to Figure Annual Percentage Yield on an Investment Over 10 Years
Original post by Mark Kennan of Demand Media
If you want to know the average return of an investment over a 10-year period, you cannot simply divide the total return by 10, because that wouldn't account for the effects of interest compounding. The annual percentage yield refers to the yearly interest rate needed to take an initial investment to a maturity value after accounting for compound interest. In addition to knowing the time, you need to know the starting and ending values. The annual percentage yield involves using decimal exponents, which require the use of a calculator.
Divide the value of your investment at maturity by the value of the initial investment 10 years prior. For example, if you invested $24,000 a decade ago and now it is worth $49,000, divide $49,000 by $24,000 to get 2.04167.
Raise the result to the 0.1 power, because 0.1 equals 1/10th. In this example, raise 2.04167 to the 0.1 power to get 1.073985838.
Subtract 1 to find the annual rate of return. In this example, take away 1 from 1.073985838 to get an annual rate of 0.073985838.
Multiply the result by 100 to find the annual percentage yield over the 10-year period. In this example, multiply 0.07399 by 100 to find the annual percentage yield equals 7.399 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.