The factors that go into short-term financial decisions can get so complex that it becomes difficult to compare options. There's just a lot of ins and outs to keep in the ol' duder's head (if you were born after 1984, that's a Big Lebowski reference).
To make these comparisons easier, it is helpful to find a standard period of comparison. That's why most business information gets reported on an annualized basis (See: Annualize). The process of annualization looks at whatever you are comparing as if you were doing that thing for a full year.
This comes up a lot in interest rates. You might take out a short-term loan from a payday lender. Under the terms of the loan, it might cost you $10 to borrow $250 for two weeks. This might not seem like much ("hey, it's just ten bucks"), but if you annualize that rate, it comes out to more than 100%.
By comparison, most credit cards only carry an annual rate in the low 20% range. By annualizing the figures, you can more easily decide that putting that $250 on your credit card makes more sense than taking out the loan.
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Finance: What Is a Real Return?67 Views
finance- a la shmoop. what is a real return? like is there a fake return? you
know like the news? well kinda .real return refers to an [man frowns talking to camera]
investment return mapped against inflation. so let's say you invest in a
bond that pays five percent a year for ten years and then pays you back your
principal .boring but nice- you know like a good doctor visit. your nominal return
over that period was 5% but since inflation was 3% a year during that
period on average your real return was only 2% a year- meaning that the
performance of your investment only eked out a 2% net gain against the price of [equation]
milk gas and you know knocked off iPhones. so don't be a chump who thinks
that they're making more money than they really are, and you know keep on keeping
it real. [man sitting in chair, talks to camera]
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