 Quote:
Originally Posted by Alan
This is similar to what I use except I estimate avg monthly balance.
G = Gain = E-S-F (Will be negative in the case of a loss.)
AvgBal = S+(E-F)/2
ROI = G/AvgBal
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I'm not sure that I follow your computations, Alan.
Let's take an example:
Starting value = S = $100
Ending value = E = $125
$10 was deposited half way through the period, F =10$
You, I and saluki9 all agree on the numerator, G = E - S - F = $15
Using your formula, the denominator would be
AvgBal = S+(E-F)/2 = 100+(125-10)/2 = 100+(115)/2 = 100+57.5 =157.5
and ROI would be G/AvgBal = 15/157.5 = 9.52%
I would use a denominator of S+(F/2) = 100+(10/2) = 105
giving a ROI of 15/105 = 14.29%
We have made $15, having put in a total of $110, $100 at the start plus $10 halfway through. I would think that the rate of return would be at least 15/110 = 13.64%. Allowing some credit for the fact the the $10 deposit was only earning returns for half the period, 14.29% seems to me more reasonable than 9.25% as an estimated rate of return.
Am I missing something?
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