A daily return refers to the rate at which an investment grows each day. Most investments are presented as an annual return, so to make meaningful comparisons, you need to convert daily returns to an annualized rate of return. Simply multiplying the daily return by 365 days won't work because simple multiplication does not factor in compound growth realized on a day-to-day basis.
Divide the daily return percentage by 100 to convert it to decimal format. As an example, if an investment yields 0.02 percent daily, divide by 100 to convert the daily return into the decimal format 0.0002.
Add 1 to the figure from the preceding step. Continuing with the example, add 1 for a total of 1.0002.
Raise this figure to the power of 365. In the example, raising 1.0002 to the 365th power equals 1.0757.
Subtract 1 from this result to determine the annual return in decimal format. In the example, subtract 1 to arrive at a figure of 0.0757.
Multiply the result by 100 to convert the decimal to percent format. Concluding the example, multiply by 100 to find that your investment has a 7.57 percent effective annual return.
- MortgageQnA.com: How to Calculate Effective Annual Interest Rate?
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