Annualize

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DEFINITION of 'Annualize'

1. To convert a rate of any length into a rate that reflects the rate on an annual (yearly) basis. This is most often done on rates of less than one year, and usually does not take into account the effects of compounding. The annualized rate is not a guarantee but only an estimate, and its accuracy depends on the variance of the rate. This rate is also known as "annualized return" and is similar to "run rate".

2. To convert a taxation period of less than one year to an annual (yearly) basis. This helps income earners to set out an effective tax plan and manage any tax implications.

BREAKING DOWN 'Annualize'

1. For example, a security that returns 1% a month returns 12% on an annualized basis. If, however, the 12% value was computed after only one month of returns, it is not certain that the 12% will be achieved for the year.

2. For example if after the first three months of the year you earn $10,000, you simply multiply the $10,000 by four to achieve $40,000, your annualized income.

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