Compound rate of return meaning

In legal and financial analysis, the compound rate of return describes the total return on an investment across multiple periods, calculated by multiplying each period’s return so that gains and losses compound with assumed reinvestment. It is a descriptive financial expression rather than a term defined by statute or case law, but it is routinely used by courts, experts and regulators in England & Wales, Scotland, Northern Ireland and Ireland. Key features: - Geometric compounding: cumulative return is the product of (1 + each period’s return) minus 1, not a simple sum or arithmetic average. - Can be annualised as a compound annual growth rate (CAGR) to compare performance over different timeframes. - Sequencing matters: negative returns compound multiplicatively and can materially reduce outcomes. - The compounding interval (for example, monthly, quarterly, annually) should align with the data and investment assumptions. Typical usage includes expert evidence in damages and restitution assessments (for example, breach of contract, professional negligence, competition claims), trustee and fund manager performance reporting, pensions and shareholder valuation disputes, and regulatory disclosures. Usage is broadly consistent across the UK and Ireland. Distinguish this concept from statutory or contractual interest: interest awards are governed by local rules, whereas the compound rate...