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The AAR Calculator is a financial savior that is made to calculate the Average Annual Return (AAR) of an investment. AAR represents the average percentage return on an investment over a given period.

Formula:
The formula is:
To calculate the Accounting Rate of Return (AAR), divide the average annual profit or payment (PMT) by the initial investment or present value (PV). Then, multiply the result by 100 to express the result as a percentage. Variables:
Variable | Meaning |
---|---|
AAR | Accounting Rate of Return (percentage) |
PMT | Average Annual Profit or Payment |
PV | Initial Investment or Present Value (the amount invested) |
100 | Multiplied by 100 to convert the ratio into a percentage |
Solved Calculations :
Example 1:
Given:
- Average Annual Profit (PMT) = $5,000
- Initial Investment (PV) = $25,000
Calculation | Instructions |
---|---|
Step 1: AAR = | Start with the formula. |
Step 2: AAR = | Replace PMT with 5,000 and PV with 25,000. |
Step 3: AAR = | Divide 5,000 by 25,000 to get 0.2. |
Step 4: AAR = 20% | Multiply by 100 to get the percentage. |
Answer:
The AAR is 20%.
Example 2:
Given:
- Average Annual Profit (PMT) = $8,000
- Initial Investment (PV) = $40,000
Calculation | Instructions |
---|---|
Step 1: AAR = | Start with the formula. |
Step 2: AAR = | Replace PMT with 8,000 and PV with 40,000. |
Step 3: AAR = | Divide 8,000 by 40,000 to get 0.2. |
Step 4: AAR = 20% | Multiply by 100 to get the percentage. |
Answer:
The AAR is 20%.
What is AAR Calculator ?
The AAR Calculator helps you easily calculate the Average Annual Return (AAR) of an investment over a specific period. AAR is a measure of the average percentage increase in value of an investment per year.
This metric is useful for investors to assess the overall growth or performance of an investment. It provides a simple way to compare the performance of different investments over time.
AAR is often confused with ARR (Accounting Rate of Return), which is a profitability ratio used to evaluate the financial viability of an investment or project. While ARR focuses on accounting income, AAR is based on actual returns.
Final Words:
The Annual Annuity Rate (AAR) Calculator is a valuable tool for assessing the annual rate of return on annuity investments. It provides clarity and transparency in financial planning, enabling individuals to make informed decisions about their future financial well-being.