DEFINITION of 'Annualized Rate'
A rate of return for a given period that is less than one year, but that is computed as if the rate were for a full year. The annualized rate is essentially an estimated rate of annual return that is extrapolated mathematically.
INVESTOPEDIA EXPLAINS 'Annualized Rate'
The annualized rate is calculated by multiplying the change in rate of return in one month by 12 (or one quarter by four).
For example, if one month's rate of return is 0.25% and the next month's is 0.35%, the change in the rate of return from one month to the next is 0.10% (0.350.25). The annualized rate of return is equal to 0.10% x 12 = 1.2%.
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What is the difference between stated annual return and effective annual return?
Essentially, the effective annual return accounts for intrayear compounding, and the stated annual return does not. The ... Read Full Answer >>
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