Calculating Annualized Return in Microsoft Excel

Scenario

• Initial Investment: $110,000
• Time Period: 5 years
• Total Rate of Return: 44.73%

Formula for Annualized Return

To calculate the annualized return, follow these steps:

1. Formula Structure:

   • Use the formula:

     = (Final Amount / Start Amount) ^ (1 / Number of Years) - 1
     

2. Steps to Perform Calculation:

   • Divide the final amount by the start amount.
   • Use brackets to ensure this operation is calculated first.
   • Raise the result to the power of one divided by the number of years invested.
     • Use ^ (Shift + 6) for exponentiation.
   • Enclose the entire operation in brackets and subtract one at the end.

3. Format the Result:

   • The result may initially appear as a decimal.
   • Format the cell using the percent style format.
   • Adjust the number of decimal places if necessary.

Calculating Number of Years Between Two Dates

• Function Used: YEARFRAC
• Arguments Required:
  • Start Date
  • End Date
• Usage:
  • Syntax: YEARFRAC(start_date, end_date)
  • Enter the start and end dates to calculate the number of years.

Tips

• Use the calculated number of years from YEARFRAC in the annualized return formula.
• Ensure all calculations and formatting are correctly applied for accurate results.

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