What is the average annual compound rate of return for a fund with the following values? $$\begin{array} { l r }
\text { Fund price, beginning of year 1 } & \$ 19.32 \
\text { Fund price, end of year 3 } & \$ 21.22 \
\text { Annual distribution, year 1 } & \$ 1.34 \
\text { Annual distribution, year 2 } & \$ 1.86 \
\text { Annual distribution, year 3 } & \$ 1.14 \
\hline
\end{array}$$

Question

What is the average annual compound rate of return for a fund with the following values? $$\begin{array} { l r } 
\text { Fund price, beginning of year 1 } & \$ 19.32 \
\text { Fund price, end of year 3 } & \$ 21.22 \
\text { Annual distribution, year 1 } & \$ 1.34 \
\text { Annual distribution, year 2 } & \$ 1.86 \
\text { Annual distribution, year 3 } & \$ 1.14 \
\hline
\end{array}$$

Quizplus · Accepted Answer

The average annual compound rate of return can be calculated using the formula for compound annual growth rate (CAGR): $(\frac{FV}{PV})^{1/n} - 1$, where FV is the final value, PV is the initial value, and n is the number of years. Including distributions, the final value is $21.22 + 1.34 + 1.86 + 1.14 = 25.56$. The initial value is 19.32. Thus, CAGR = $(\frac{25.56}{19.32})^{1/3} - 1 \approx 10.5\%$.

What Is the Average Annual Compound Rate of Return for a Fund