Hi, so I was looking up annualized interest rates because they're used a lot in the news like when reporters talk about "annualized GDP". Investopedia (Annualized Rate Definition | Investopedia) says that it is basically multiplying the monthly return on assets by 12. But that's kind of weird because if you keep that asset in for a year, your pile of money will grow exponentially. Why does Investopedia do that?
The formula that Ready Ratios (Annualized Rate) uses makes a lot more sense to me because you put your money in for n periods and watch it grow. Then you take away the 1 to take away your initial investment to see just the growth caused by the interest rate.
Which is the "real" formula for calculating the annualized interest rate?