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Rate of Return
Your return is the profit or loss you have on your investments, including income and change in value.
Return can be expressed as a percentage and is calculated by adding the income and the change in value and then dividing by the initial principal or investment amount. You can find the annualized return by dividing the percentage return by the number of years you have held the investment.
For example, if you bought a stock that paid no dividends at $25 a share and sold it for $30 a share, your return would be $5. If you bought on January 3, and sold it the following January 4, that would be a 20% annual percentage return, or the $5 return divided by your $25 investment.
But if you held the stock for five years before selling for $30 a share, your annualized return would be 4%, because the 20% gain is divided by five years rather than one year.
Percentage return and annual percentage return allow you to compare the return provided by different investments or investments you have held for different periods of time.