An Annual Average Rate (AAR) calculator helps determine the average annual return on an investment over a specified period. This can be useful for investors to understand the performance of their investments.
Formula and Calculations:
To calculate the Annual Average Rate (AAR), you can use the following formula:
๐ด๐ด๐ =(๐น๐)1๐โ1AAR=(PFโ)N1โโ1
Where:
- ๐P is the initial investment
- ๐นF is the final value of the investment
- ๐N is the number of years
Inputs:
- Initial Investment (P): The initial amount of money invested.
- Final Value (F): The final value of the investment after a certain period.
- Number of Years (N): The number of years the investment was held.
Example Calculation:
Let’s assume the following:
- Initial Investment (P): $1,000
- Final Value (F): $2,000
- Number of Years (N): 5
- Calculate the AAR:๐ด๐ด๐ =(20001000)15โ1AAR=(10002000โ)51โโ1๐ด๐ด๐ =(2)15โ1AAR=(2)51โโ1๐ด๐ด๐ =1.1487โ1AAR=1.1487โ1๐ด๐ด๐ =0.1487 or 14.87%AAR=0.1487 or 14.87%
So, the Annual Average Rate (AAR) is 14.87%.
Summary of Results:
- Initial Investment (P): $1,000
- Final Value (F): $2,000
- Number of Years (N): 5
- Annual Average Rate (AAR): 14.87%
Information Table
| Parameter | Value |
|---|---|
| Initial Investment (P) | $1,000 |
| Final Value (F) | $2,000 |
| Number of Years (N) | 5 |
| Annual Average Rate (AAR) | 14.87% |
Conclusion
An AAR calculator can help investors understand the performance of their investments over time. By inputting the initial investment, final value, and number of years, you can calculate the average annual return. This is particularly useful for comparing the performance of different investments and making informed financial decisions.