Average Annual Return (AAR)

The average annual return (AAR) is a measure of the annualized return on an investment over a specified period of time. It is calculated by taking the total return over the period and dividing it by the number of years in the period.

The AAR is a useful tool for comparing different investments and for making investment decisions. It can also be used to track the performance of an investment over time.

To calculate the AAR, you will need to know the beginning value of your investment, the ending value of your investment, and the number of years in the period.

The formula for calculating the AAR is:

```
AAR = (Ending Value - Beginning Value) / Number of Years
```

For example, if you invest $1000 in a stock and the stock increases in value to $1200 over a period of 2 years, the AAR would be 10%.

```
AAR = (1200 - 1000) / 2 = 10%
```

The AAR is a simple and easy-to-understand measure of investment performance. However, it is important to note that the AAR does not take into account the volatility of an investment.

An investment with a high AAR may also have a high level of volatility, which means that the value of the investment may fluctuate significantly over time.

For this reason, it is important to consider the AAR in conjunction with other factors when making investment decisions.

The AAR is a useful tool for comparing different investments and for tracking the performance of an investment over time. However, it is important to note that the AAR does not take into account the volatility of an investment.