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Math Help - Return on a series of investments

  1. #1
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    Return on a series of investments

    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
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  2. #2
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    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.
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  3. #3
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    Return on a series of investments

    Wilmer,

    Thanks for your timely response --it is most appreciated.

    John S
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  4. #4
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    Return on a series of investments

    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
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  5. #5
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    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?
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  6. #6
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    Return on a series of investments

    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
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  7. #7
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    Return on a series of investments

    Wilmer,

    Sorry for the formatting --looks like spaces are ignored.

    Anyway, the numbers are there, they just need to be seperated.

    Thanks again,

    John
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  8. #8
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    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
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  9. #9
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    return on a series of investments

    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
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  10. #10
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    Quote Originally Posted by John S View Post
    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.
    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
    Last edited by Wilmer; October 12th 2009 at 10:34 AM. Reason: none
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  11. #11
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    return on a series of investments

    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
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  12. #12
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  13. #13
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    return on a series of investments

    Wilner,

    Once again thanks--I had gone to Google and asked for Financial Calculations--which turned out to be a very, very broad subject. Your search was most helpful and this should be my last entry.

    Thanks,

    John S
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  14. #14
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    Hope I helped.
    "Happy invs't trails to you...."
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