 InvestHub.com's Finance Dictionary and Glossary of Investment Terms annual return Definition 1.
The increase in value of an investment, expressed as a percentage per year. If the annual return is expressed as annual percentage yield, then the number takes into account the effects of compounding interest. If it is expressed as annual percentage rate, then the annual rate will usually not take into account the effect of compounding interest.  Definition 2.
Annual return on investment is calculated by taking the value of the investment held at the beginning of the ROI period compared to the current value. In other words: ((Current Value)  (Beginning Value) + (Income)) / (Beginning Value), where (Current Value) = (the current total shares) * (the last price), (Beginning Value) = (number of shares held prior to the period  any shares sold) * (the closing price prior to the period) + the "Cost Basis" of any shares added in this period (Buys, Reinvest, Add Shares, etc), and(Income) = any income events such as Dividends/Interest (not Reinvested) and Realized gain/loss from Sells in this period. For example, assume that on 1/1/99 you owned 1000 shares of MSFT (which had been purchased prior to this date), the last price (on 12/31/98) was $69 11/32, and you still own the 1000 shares and the current price is $90 1/8. The ROI (YTD) for MSFT would be calculated: ((1000 * 90.125)  (1000 * 69.34375)) / (1000 * 69.34375) = 20781.25/69343.75 = 29.968%If you had purchased 200 additional shares at $75 each during this period, the formula would be modified as follows:((1200 * 90.125)  (1000 * 69.34375 + 200 * 75)) / (1000 * 69.34375 + >200 * 75) = 23806.25/84343.75 = 28.225% 

