Let A,B,C,D,E be the 5 investment amounts, and a,b,c,d,e be their ANNUAL rates.
Annual yield = (Aa + Bb + Cc + Dd + Ee) / (A + B + C + D + E)
If that's not what you want, then please post a COMPLETE question.
I'm trying to compute the compound annual growth rate for a series of 5 investments. Each investment is for a different amount and for a different time period.
Please help me compute the overall return on these investments.
Thanks,
John S
Wilmer,
To follow up on your response.
I've used your approach to compute annual yield, but I get a counter intuitive answer. My 5 investments have an overall very positive return, but when using your approach I get a negative annual rate of return.
Several of the investments are for short periods and have a large negative rate of return and outweigh the longer investments which in total provide a large postive amount of return.
What are your thoughts?
Thanks again
John S
Pretty difficult for me to "understand" without examples.
Are you using the negative rates properly?
5000 @ 8%
9000 @ -11%
(5000 * .08 + 9000 * -.11) / (5000 + 9000) = -.0421 ; -4.21%
9000 @ 8%
5000 @ -11%
(9000 * .08 + 5000 * -.11) / (9000 + 5000) = +.0121 ; +1.21%
Do your calculations reflect those?
Wilmer,
Here are the specifics
Investment Days Held P/L Return
5,024 989 3,051 22%
7,000 1316 27,547 109%
4,925 49 -1,355 -205%
7,246 422 -978 -12%
5,030 1052 1,090 8%
As you can see there is an overall profit, but using your approach gives a -6% return.
Again, thanks for your interest and help.
John S
Investment Days Held P/L Return
5,024 989 3,051 22%
7,000 1316 27,547 109%
4,925 49 -1,355 -205%
7,246 422 -978 -12%
5,030 1052 1,090 8%
Ahhh...I see; that does at "face value" compute to a -6.3% return;
BUT:
we can't use the $4925 (49 days) that way to calculate the return;
the 4925 needs to be "annualized": 4925 * 49/365 = 660;
like, investing 4925 for 49 days is same as investing 660 for 365 days.
So your schedule really is:
Investment Days Held P/L Return
5,024 989 3,051 22%
7,000 1316 27,547 109%
** 660 365 -1,355 -205%
7,246 422 -978 -12%
5,030 1052 1,090 8%
=====
24960 (total)
Put that through the grinder: you'll get a 27.7% return.
So you're richer than you thought
Wilner,
Thanks again for your help.Your recommendation makes sense
However, being the obsessive person that I am, I used your approach on the other 4 investments --it seems it should apply to all investments. I got a whopping 47% return--which exceeded my wildest expectations.
Anyway, I am also a social drinker and like your thinking on the subject--my son is visiting and I will get back with you early next week.
Thanks for your interest.
John S
No, it should not apply.
The 47% that you get is for over 1 year.
Only 1 year's worth of interest is used to determine ANNUAL return.
And the formula (which does not use the interest amounts) uses exactly
the equivalent of 1 year's interest by using rate and amount.
To calculate the return FOR 1 YEAR, you only need the amount and rate:
5,024 22%
7,000 109%
660 -205% : this amount of 660 is the equivalent of 4,925 over 49 days
7,246 -12%
5,030 8%
==========
24960 27.7%
Soooo...if you're having drinks this weekend, social I
Wilner,
Thanks again--believing in the Chinese proverb regarding "Teaching how to fish rather than giving away fish" I would rather get a clear and complete understanding of these calculations than have to ask a bunch of dumb questions.
Could you either direct me to or provide some reference material on the subject of calculating these kind of returns.
Thanks again for your help!
John S
We had our fair share of social drinking this week-end