calculating rate of return

[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??

[SiRV]

did you include dividend payments?

[Hehe]

Why so complicated? And I think neither way is correct.

I do the following:

Money at start=A
Money at now=B

(B-A)/x=Average return per year where x is the year.

This would be the simplest way.

For more precise yearly figure you'd take the x root of (B-A)

Because you didn't say what number was used to come up with % figure at year 2. (assuming it's the balance of year one, then the return is a bit over 4%, or even slighter over 2% if compounded yearly)

[tiger_handheld]

for the individual years, they have dividend payments included. the -7 and 12 have everything included when considered individually.

(B-A)/x=Average return per year where x is the year.

the average rate for year 11 is -7 and average rate for year 12 is 12.

what i want to know is over the past two years i have averaged X.. what is X?

edit: why would anyone need the balances? The individual yearly rates of return are given =\

[4444]

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??

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

[4444]

What course and institution is this for?

[Hehe]

I actually missed a step... my excel I use:
[(B-A)/A]/x

Assuming you started with $100, by your example, at end of year 1 you had $92.8 (100*0.928) while year 2 is $104.04 (92.8*1.1211). The formula works as
(104.04-100)/100=0.0404
And 0.0404/2 (x=2 years)=0.0202 or 2.02%.

Precisely, at yearly measurement, take square (since 2 year) root of 0.0404=0.020099, you have about 2%.

[tiger_handheld]

Originally Posted by 4444

What course and institution is this for?

it's not for school. i'm trying to figure out what my ror is on some investments i own and if i should can them before year end of year.

i'm trying to see if i'm hitting my goal of achieving 5-7% return on average per year over 2/3/4/5 year period. (my goal is over 5yr period)

lets use some numbers here.

year 2010 - amount invested 4000 - rate of return = 1.29%
year 2011 - amount invested 1700 - rate of return for year = -7.2%
year 2012 - amount invested 1600 - rate of return for year = 12.11%

i'm super confused by your guys's 1-x +y = Z stuff...

[4444]

Originally Posted by tiger_handheld

it's not for school. i'm trying to figure out what my ror is on some investments i own and if i should can them before year end of year.

i'm trying to see if i'm hitting my goal of achieving 5-7% return on average per year over 2/3/4/5 year period. (my goal is over 5yr period)

lets use some numbers here.

year 2010 - amount invested 4000 - rate of return = 1.29%
year 2011 - amount invested 1700 - rate of return for year = -7.2%
year 2012 - amount invested 1600 - rate of return for year = 12.11%

i'm super confused by your guys's 1-x +y = Z stuff...

Yikes - if you can't do that math, and if past performance dictates sell decisions, you should get a professional to manage your money.

Your financial literacy is low, based on this so your decision making may be on inaccurate and poor information
Posted via RS Mobile

[tiger_handheld]

Originally Posted by 4444

Yikes - if you can't do that math, and if past performance dictates sell decisions, you should get a professional to manage your money.

Your financial literacy is low, based on this so your decision making may be on inaccurate and poor information
Posted via RS Mobile

i've never evaluated based on past performance. this is my first time - why now? I want to see if i'm hitting my goal. by the end of 2013 - i'm 4/5 into my 5yr goal.



This is what I was looking for - I guess it was called annualized returns and I needed to provide the begining / ending balances
http://luminouslogic.com/how-to-comp...-of-return.htm

[DaFonz]

Your problem is that you have different capital bases with withdrawals and deposits. The easiest thing to do is to use XIRR:

XIRR stuff