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Annualized Returns

Question 1
Multiple Choice

The annualized return for an investor who has earned a return of 6% over a four-week period is closest to:

Explanation

To annualize a periodic return, use the formula:

Annualized Return = (1 + r_{period})^{\frac{365}{n}}-1

  • r_{period} = 6% = 0.06

  • n = 28 days (4 weeks)

Annualized Return = (1 + 0.06)^{\frac{365}{28}}-1 = 93.08%

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Question 2
Multiple Choice

An investor earns a 10.5% return on a security over an 18-month holding period. The annualized return is closest to:

Explanation

To convert a holding period return to an annualized return, use the formula:

Annualized return = (1 + R_{HPR})^{12/n}-1

Annualized return = (1 + 1.105)^{12/18}-1 = 6.85%

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