What is the formula for the annual rate of return?

A : Annual Cash Flow : Cost of Capital Investment.

B : Expected Annual Net Income : Cost of Capital Investment.

C : Annual Cash Flow : Average Investment.

D : Expected Annual Net Income : Average Investment.

Answer: Option D

Explanation: In simple words, annual rate of return refers to the amount of profit that an individual or an entity made in their investments for a specified period of time, generally a year. This ratio is considered to be a profitability ratio and is important for investors while making decisions to whether invest or not in a company.

As it is the rate of return on investments made, it is computed by dividing the expected annual income with the average investment. Average investment refers to the average of beginning and ending balance of investment made in the time period for which the ratio is being computed.

Hence from the above we can conclude that the correct option is D.