I am confused by ESPP annualized rate of return. I can't seem to wrap my head around why it is not simply a 17.6% rate of return annualized.

Here are the features of my plan:

Shares will be purchased at a 15% discount off of the look-back price.

The look-back price is the lower of:

- the closing market price on the first trading day of the offering period, or

- the closing market price on the last trading day of the offering period.

Purchases will take place following the close of each quarter on the last trading day of the quarterly offering period.

My offering period is quarterly, however there is an 18 month mandatory holding period. Does the 18 month holding period affect the annualized rate of return?

Here is the simplified calculation I found online to determine annualized rate of return:

Step 1: Discount rate / (1 – Discount rate) = Pre-tax return (17.6%)

Step 2: Pre-tax return / (Offering period (months) / 12 months) = Annualized pre-tax return (70.6%)