Compound Return


Compound Return
The rate of return, usually expressed as a percentage, that represents the cumulative effect that a series of gains or losses have on an original amount of capital over a period of time. Compound returns are usually expressed in annual terms, meaning that the percentage number that is reported represents the annualized rate at which capital has compounded over time.

When expressed in annual terms, a compound return can be referred to as a "compound annual growth rate (CAGR)".

For example, if an investment fund claims to have produced a 10% annual compound return over the past five years, this means that at the end of its fifth year, the fund's capital has grown to a size equal to what it would be if the funds on hand at the beginning of each year had earned exactly 10% by the end of each year.

In other words, suppose you started with an initial investment of $1,000. If you multiply 1,000 by 1.1 five times, you will end up with about $1,611. If an investment of $1,000 ended up being worth $1,611 by the end of five years, the investment could be said to have generated a 10% annual compound return over that five-year period.

However, this does not mean that the investment actually appreciated by 10% during each of the five years. Any pattern of growth that led to a final value of $1,611 after five years would equate to a 10% annualized return. Suppose the investment earned nothing for the first four years, and then earned $611 in its last year (a 61.1% return for the year). This would still equate to a 10% annual compound return over the five-year measurement period, since the final amount is still equal to what the $1,000 would have grown to if it had appreciated by a steady 10% each year.


Investment dictionary. . 2012.

Look at other dictionaries:

  • Return to Castle Wolfenstein — Entwickler …   Deutsch Wikipedia

  • Return to castle Wolfenstein — Entwickler: Gray Matter Interactive, Nerve Software, id Software Verleger: Activision(PS2, PC, Xbox), Activision/Valve Corpora …   Deutsch Wikipedia

  • Compound annual growth rate — (CAGR) is a business and investing specific term for the smoothed annualized gain of an investment over a given time period.[1] CAGR is not an accounting term, but remains widely used, particularly in growth industries or to compare the growth… …   Wikipedia

  • compound annual rate of return — ˌcompound ˌannual ˌrate of reˈturn noun [countable] FINANCE the amount of compound interest paid or earned on a sum of money in twelve months …   Financial and business terms

  • Compound option — or split fee option[1][2] is option on an option. The exercise payoff of a compound option involves the value of another option. A compound option then has two expiration dates and two strike prices. Usually, compounded options are used for… …   Wikipedia

  • Compound empowerment — refers to the way in which public infrastructure is used to radically increase the accumulation of private wealth. The term denotes how common wealth tax supported resources such as public education, financial and legal infrastructure, etc. is… …   Wikipedia

  • compound — com‧pound [kəmˈpaʊnd ǁ kɑːmˈpaʊnd, ˈkɑːmpaʊnd] verb [transitive] FINANCE to pay interest on both a sum of money and the interest already earned on it: • My bank compounds interest quarterly. * * * Ⅰ. compound UK US /ˈkɒmpaʊnd/ adjective FINANCE ► …   Financial and business terms

  • Compound interest — The effect of earning 20% annual interest on an initial $1,000 investment at various compounding frequencies Compound interest arises when interest is added to the principal, so that from that moment on, the interest that has been added also… …   Wikipedia

  • Compound Net Annual Rate - CNAR — The return on an investment after taking tax implications into consideration. The compound net annual rate (CNAR) is much like an investment s compound annual rate except that tax liability is taken into account. CNAR is a truer representation of …   Investment dictionary

  • compound annual growth rate — Annual return calculated based on each year s previous balances where each previous balance includes both the original principal and all interest accrued from prior years. Best defined by example. Bloomberg Financial Dictionary If you invest $100 …   Financial and business terms


Share the article and excerpts

Direct link
Do a right-click on the link above
and select “Copy Link”

We are using cookies for the best presentation of our site. Continuing to use this site, you agree with this.