Suppose you invested Rs 100 and earned Rs 2 in 5 months, ie 2% in 5 months. Your friend earned Rs 3 on an investment of Rs 100 in 1 year. How do the two compare? If we calculate all returns on an annual basis, we can compare them. In your case if we annualise the 2% return in 5 months, it comes to 5% pa compared with your friend’s at 3% pa.
Annualised Return
