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Annual Rate of Return |
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Annual rate of return There are many ways of calculating the annual rate of return. If the rate of return is calculated on a monthly basis, we sometimes multiply this by 12 to express an annual rate of return. This is often called the annual percentage rate (APR). The annual percentage yield (APY) includes the effect of compounding interest. Annual Percentage Rate The cost of funds or interest rate for an entire year expressed as a single percentage. Significantly, the APR does not account for compounding. For example, if the APR is 36%, the percentage is 3% per month, but the interest rate or cost of funds for the entire year may be greater than 36% due to the effects of compounding. By law, a credit card company or other lender must inform the customer of the APR before any agreement is signed. The APR provides the customer with a convenient number against which to compare the cost of funds for other loans or investments. It is less commonly called the annual rate of return or the nominal annual rate. Want to thank TFD for its existence? Tell a friend about us, add a link to this page, add the site to iGoogle, or visit the webmaster's page for free fun content. |
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