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| Annualized Quarterly Rate of Return Formula: Annual Rate = ( ( 1 - ( ( period rate * 4 ) / 4 ) ) ^ 4 ) - 1 | |||
Annualized Quarterly Rate of Return Definition Introduction Compounded dividends can greatly improve someone’s investment performance. Sometimes, dividends are calculated and compounded at different frequencies. This calculator clearly and easily annualizes different quarterly dividend rates. Rate of Return Explained Investing money in any venture carries some risk. To motivate would-be lenders to give money to a stock or bond, the stock or bond gives a percentage-based amount of money back to the investor in addition to what the investor gave. In this calculator, this additional “money back,” or “returns,” is called a “dividend.” If earning compounded quarterly interest on a bond, this is the same thing. Compounding Frequency and Annualized Returns Dividends are calculated at different frequencies. Some common time frames for dividend calculations include:
Here the focus is on quarterly dividends that are compounded over the course of a year. Quarters are defined as every three months from the date an investment is made. Comparisons To compare investments, these different compounding frequencies must be standardized. An equivalent annual rate is a convenient and often-used comparison basis. Type the quarterly percentage number into the calculator input and click “Calculate.” Do not press “Enter.” Notes and Tips This calculator assumes the quarterly dividends will be compounded. If an investment pays out a quarterly dividend instead of compounding it, this calculation does not apply. The calculator makes no provisions for tax effects. Different marginal tax rates may mean effectively different after-tax dividends even if gross dividend percentages are the same. Compounding Formula Given a quarterly rate of return “r,” the first step is to express rate “r” as a decimal. For instance, a quarterly return of 2% would mean r = 0.02 Annualized rate as decimal = [ (1 + r)^4 ] – 1 Annualized rate as percent = Annualized rate as decimal x 100% Using example r = 2%, the calculator would give: Annualized rate as decimal = [ 1.02^4 ] – 1 = 1.08243 – 1 = 0.0824 Annualized rate as percent = 8.24% How to Calculate Annualized Quarterly Rate of Return Let's be honest - sometimes the best annualized quarterly rate of return calculator is the one that is easy to use and doesn't require us to even know what the annualized quarterly rate of return formula is in the first place! But if you want to know the exact formula for calculating annualized quarterly rate of return then please check out the "Formula" box above. |