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> OT: Rate of Return Calculations, Big brain Fart
Qarl
post May 12 2005, 06:52 PM
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Let's say I invested $1000 in a mutual fund on November 1, 2002

At the end of April of 2005, it is worth $1450.

My gain is $450 or 45% since I purchased it.

But how do I calculate how much average annual return it has been for the 30 month period. Or in other words, it's equivalent to an investment making X% a year?

What's the formula?

Thanks....
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iamchappy
post May 12 2005, 06:59 PM
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Qarl have you stopped taking your vitamins.?
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black73
post May 12 2005, 07:03 PM
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total %, divided by number of months, times 12= average annual percentage
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Qarl
post May 12 2005, 07:35 PM
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No... I guess I'm trying to figure out the equivalent compounded rate (annually)

If I take 45%/30 months x 12 = 18%

1000 x 1.18 = 1180
1180 x 1.18 = $1392.40
$1392.40 x 1.18 = $1643 which is too high
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black73
post May 12 2005, 07:42 PM
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OK, you lost me. 18% x 2.5 years(30 months)= 45%
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scotty914
post May 12 2005, 07:49 PM
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QUOTE (Qarl @ May 12 2005, 05:35 PM)
No... I guess I'm trying to figure out the equivalent compounded rate (annually)

If I take 45%/30 months x 12 = 18%

1000 x 1.18 = 1180
1180 x 1.18 = $1392.40
$1392.40 x 1.18 = $1643 which is too high

you just figured what the 3 year rate would be not the 30 months

1000 * 1.18 = 1180 12 months
1180 * 1.18 = 1392.4 24 months
1392 * 1.09 = 1517 30 months

so the annual rate is just under 18 %

now you need to remember that the interest is figured on a monthy basis so it is probably closer to 16 % figured on a monthly rate of around 1.33 %. remember that you gain the interest on a monthly rate so you really cant figure it yearly except to be lazy
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michel richard
post May 12 2005, 07:51 PM
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QUOTE (black73 @ May 12 2005, 05:03 PM)
total %, divided by number of months, times 12= average annual percentage

Close but not exactly, you forgot about compounding.

This is what I do for a living, I trade bonds.

In this case:

((1,450 / 1,000) ^ (1 / 30) -1 ) * 12

i.e. 1) you take the ratio of the end ovet the beginning, 1.45 in this case; 2) you take it to the power of 1 over the number of periods: the result is 1.01246. 3) You subtract 1, and this gives you 1.246%, which is you return per period, in this case, monthly. 4) You multiply the result by 12, and that gives you 14.95%, which is your annual return on a monthly compounding basis.

HTH

Michel Richard
914/6 2.2 E MFI
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Howard
post May 12 2005, 07:53 PM
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ROI calculation:

Initial Value: 1000
Value @2.5 years: 1450
Annual rate of return is 14.86% assuming interest is compounded daily.
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michel richard
post May 12 2005, 07:56 PM
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Hang on, the calculation I made assumes there was no cashflow over the period i.e. you did not earn dividends or interest payments each month.

If that is true, and you want the result on a yearly compounding basis, the formula is:

((1,450 / 1,000) ^ (1/2.5) - 1

because 30 months is 2.5 years. The answer then is 16.02 %
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michel richard
post May 12 2005, 08:00 PM
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To convert a yearly compounded figure into a monthly one:

((1 + 16.02 %) ^ ( 1 / 12 ) -1 ) * 12

In this case, there is no absolute reason for calculating on a daily, monthly, or yearly compounded basis, because there is only one cashflow at the end.
The reason for paying attention to compounding frequency is simply to ensure that you are looking at comparable figures if you compare to returns on another investment.

Michel
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ArtechnikA
post May 12 2005, 08:00 PM
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i invested $1000 is 914 parts in 2002, but they've rusted away to nothing now.
what is the average monthly rate of oxidation?

(sorry, since it's an OT thread anyway, i couldn't resist a bit of on-topic foolishness :-) ...)
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michel richard
post May 12 2005, 08:02 PM
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QUOTE (ArtechnikA @ May 12 2005, 06:00 PM)
(sorry, since it's an OT thread anyway, i couldn't resist a bit of on-topic foolishness :-) ...)

Cool
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Howard
post May 12 2005, 08:04 PM
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QUOTE (michel richard @ May 12 2005, 06:56 PM)
Hang on, the calculation I made assumes there was no cashflow over the period i.e. you did not earn dividends or interest payments each month.

If that is true, and you want the result on a yearly compounding basis, the formula is:

((1,450 / 1,000) ^ (1/2.5) - 1

because 30 months is 2.5 years. The answer then is 16.02 %

Michel, have you got any with that yield in USD? I'll take a few (IMG:http://www.914world.com/bbs2/html/emoticons/biggrin.gif)
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Qarl
post May 12 2005, 08:04 PM
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That's what I needed... Thanks!
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kenporacer
post May 12 2005, 08:19 PM
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QUOTE (ArtechnikA @ May 12 2005, 06:00 PM)
i invested $1000 is 914 parts in 2002, but they've rusted away to nothing now.
what is the average monthly rate of oxidation?

(sorry, since it's an OT thread anyway, i couldn't resist a bit of on-topic foolishness :-) ...)

thats depretiation!!
Erik
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Carl
post May 12 2005, 08:58 PM
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Ummm ... what?
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QUOTE
14.95%, which is your annual return on a monthly compounding basis.


That's what my calculator tells me.
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michel richard
post May 12 2005, 09:04 PM
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QUOTE (Howard @ May 12 2005, 06:04 PM)
because 30 months is 2.5 years. The answer then is 16.02 % [/QUOTE]
Michel, have you got any with that yield in USD? I'll take a few (IMG:http://www.914world.com/bbs2/html/emoticons/biggrin.gif)

Only Candadian dollar bonds, plus my license is no good in California. Sorry.

However, I know of some real estate in Florida . . .
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Howard
post May 12 2005, 11:11 PM
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QUOTE (michel richard @ May 12 2005, 08:04 PM)
However, I know of some real estate in Florida . . .

Already bought some thru my broker. Dewey, Cheatham & Howe. (IMG:http://www.914world.com/bbs2/html/emoticons/wacko.gif)
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Dr. Roger
post May 12 2005, 11:29 PM
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QUOTE (Howard @ May 12 2005, 06:04 PM)
QUOTE (michel richard @ May 12 2005, 06:56 PM)
Hang on, the calculation I made assumes there was no cashflow over the period i.e. you did not earn dividends or interest payments each month.

If that is true, and you want the result on a yearly compounding basis, the formula is:

((1,450 / 1,000) ^ (1/2.5) - 1

because 30 months is 2.5 years.  The answer then is 16.02 %

Michel, have you got any with that yield in USD? I'll take a few (IMG:http://www.914world.com/bbs2/html/emoticons/biggrin.gif)

Russell mid cap index. 1 year to date.

20.31% return. =-)
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airsix
post May 13 2005, 10:38 AM
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Ok, now that you all know your return lets calculate the 12mo. downside risk. That's likely to be a shocker for some of you. (Right Michel? (IMG:http://www.914world.com/bbs2/html/emoticons/wink.gif)) Return is just one side of the coin.

-Ben M. (fee only asset mgmt.)
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