Annualized rate

The annualized rate is the computed amount of return that would be realized if a short-term investment were to be extrapolated for a period of one year. For example, if an investment lasting four months has a 3% rate of return, then its annualized rate would be 9%. Using annualized rates to compare investments having different durations can cause incorrect investment decisions, since doing so assumes that short-term investments can be continually rolled over into similar investments that generate similar returns.

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