Calculate the gain factor by dividing the final value of the investment by the initial value of the investment. For example, if you bought a stock for $50 and sold it for $80, you would divide $80 by $50 to get 1.6.
Divide 1 by the number of years you held the investment. For example, if you held the stock four years, you would divide 1 by 4 to get 0.25.
Raise the result from Step 1 to the power of the result from Step 2. "Raising" refers to using exponents, a shorthand way of saying to multiply a number by itself a certain number of times. For example, six to the third power would be six times six times six. In this example, you would use a calculator to raise 1.6 to the 0.25th power to get 1.12468265.
Subtract 1 from the result from Step 3 to find the annualized rate of return expressed as a decimal. In this example, you would subtract 1 from 1.12468265 to get 0.12468265.
Multiply the result from Step 4 by 100 to convert the annualized return from a decimal to a percentage. Finishing the example, you would multiply 0.12468265 by 100 to find an annualized return of about 12.5 percent per year.