average annual return example
The Average Annual Return is a percentage figure used to report a historical return of a given period (most commonly 3-, 5-, 10-year). The most common area using this figure is mutual funds. The deceptive part of Average Annual Return is how it is calculated. It is simply (Sum of Annual Returns) / (# of Years). For example, to earn a 10% annual return, a fund could perform both of the following ways: 1  Return 1: (+10% + +10% + +10% + +15% + +5%) / 5 = 10% Average Annual Return. 2  Return 2: (40% + +30% + -10% + +5% + -15%) / 5 = 10% Average Annual Return.