Another perspective on HPY (Annual returns)

Let's use an example of a house. You bought a house 42 years ago for $10,000 and just sold it for $80,000.

If we use the standard way of calculating the HPR, your profit is %700. Woo Hoo! Hold on, what about the past 8 years? Didn't you spend any money to eat?
HPR = 80,000 / 10,000 = 8.0
HPY = HPR - 1
= (8.0 -1) = 7.0 = 700%

The proper way of doing it is to do it below. Now, you've got a more reasonable number which is 5.08%. So, if you're investments takes a long time, annualize them.

HPY = [(HPR)1/n - 1] x 100
= [(8.0)^1/42 - 1] x 100
= (1.050758 - 1) x 100
= (0.050758) x 100
= 5.08% Annually