what is the yearly rate of return method 
the yearly rate of return method commonly referred to as the annual percentage rate is the amount earned on a fund throughout an entire year the yearly rate of return is calculated by taking the amount of money gained or lost at the end of the year and dividing it by the initial investment at the beginning of the year this method is also referred to as the annual rate of return or the nominal annual rate the formula for yearly rate of return yearly rate of return eyp byp byp 100 where eyp end of year price byp beginning of year price begin aligned text yearly rate of return big frac text eyp text byp text byp big times 100 textbf where text eyp text end of year price text byp text beginning of year price end aligned yearly rate of return bypeyp byp 100where eyp end of year pricebyp beginning of year price example of yearly rate of return method calculationif a stock begins the year at 25 00 per share and ends the year with a market price of 45 00 a share this stock would have an annual or yearly rate of return of 80 00 first we subtract the end of year price from the beginning price which equals 45 25 or 20 next we divide by the beginning price or 20 25 equals 80 lastly to arrive at a percentage 80 is multiplied by 100 in order to arrive at a percentage and the rate of return 80 00 it should be noted that this would technically be called capital appreciation which is only one source of an equity security s return the other component would be any dividend yield for instance if the stock in the earlier example paid 2 in dividends the rate of return would be 2 greater or using the same calculation roughly 88 00 over the one year period as a measure of return the yearly rate of return is rather limiting because it delivers only a percentage increase over a single one year period by not taking into consideration the potential effects of compounding over many years it s limited by not including a growth component but as a single period rate it does serve its purpose other return measuresother common return measures which may be an extension of the basic return method include adjusting for discrete or continuous time periods which is helpful for more accurate compounding calculations over longer time periods and in certain financial market applications asset managers commonly use money weighted and time weighted rates of return to measure performance or the rate of return on an investment portfolio while money weighted rates of return focus on cash flows the time weighted rate of return looks at the compound rate of growth of the portfolio in an effort to be more transparent with investors particularly retail measuring and disseminating investment performance has become its niche within capital markets the cfa institute a worldwide leader in the advancement of financial analysis now offers a professional certificate in investment performance measurement cipm designation according to the cipm association the cipm program was developed by the cfa institute as a specialty credentialing program that develops and recognizes the performance evaluation and presentation expertise of investment professionals who pursue excellence with a passion 