Quote:
Originally Posted by tiger_handheld
i'm trying to calculate the average rate of return and see to be having some issues compared to another person i'm comparing values with. am i on crack?
yr 2011 - rate of return: -7.20%
yr 2012 - rate of return: 12.11%
average rate of return over the two years: (-7.20 + 12.11)/2 = 2.455%
my buddy says two year rate of return is 10.39%.
how is it 10.39? am I calculating average wrong??
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1*0.928*1.1211=x (the 1 isn't necessary, but I'm showing it as your capital base) 0.928 is 1-0.072 representing year 11 loss of 7.2%
x-1=y
y/2= your average rate of return, I get 2.02%
The way you've done it is a simple average of two numbers, your capital will decrease after year 11, so your 12.11% return in year 12 is on a smaller capital base
With this information, neither of you appear correct