How to Calculate Annual Return With Stock Prices

by Michael Keenan ; Updated April 19, 2017

The annual return on an investment can be calculated based on the starting and ending prices. Unless you held the stocks for precisely one year, you have to figure the effects of interest compounding into your annual return. In addition to the stock prices, you also need to know the term for which you held the stock. However, when you use just the stock prices, you do not account for the returns generated by dividend payments.

Step 1

Divide the closing value of the stock by the starting value of the stock. For example, if a stock started at $23.50 and grew to $29.20, divide $29.20 by $23.50 to get 1.242553191.

Step 2

Compute 1 divided by the years the change in the stock price took place. For example, if you held the stock for 9 months, divide 1 by 0.75 to get 1.333333.

Step 3

Raise the ratio of the closing price to the beginning price to the power of 1 divided by the term. A scientific calculator is usually needed. In this example, enter 1.242553191, push the "^" key, enter 1.333333 and push equals to get 1.335836444.

Step 4

Subtract 1 from the result to find the annual return rate. In this example, subtract 1 from 1.335836444 to get 0.335836444.

Step 5

Convert the annual return rate as a decimal to a percent by multiplying it by 100. Completing this example, multiply 0.335836444 by 100 to find the annual rate of return from the stock prices equals about 33.58 percent.

References

About the Author

Mark Kennan is a writer based in the Kansas City area, specializing in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."

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