Annual compound return

The annual rate of return earned on an investment which includes any growth, for example: Investment of £100 grows by 5% in the first year; You then have £105 at the start of year 2, this then grows by a further 3%, so at the beginning of year 3 the investment is worth £108.15. This is the effect of compounding. So a growth of £8.15 on £100 over 2 years is actually an annual compound return of 4% per year, not 8.15% divided by 2.

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