Find the compound return
If I have a specific amount of money. For example 1000€ at the beginning of the 2008 year.
-65.55 2008
91.25 2009
17.74 2010
-42.87 2011
18.32 2012
-18.82 2013
56.57 2014
How much money i will have in the final of 2014, assuming the YTD in this year, just for learning purposes.
In the excel, there is any function to calculate this? Basically i want to know how can i find the Compound return effect.
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At the end of 2014 you would have 666€ in your example, assuming that the values you have are the annual return. They way you have it laid out One way you can do it is create another column where you adjust the annual returns to =(A1+100)/100). Then just use the Product function on that column * 1,000, so =Product(C1:C7,1000)
To get the compound effect just use the formula = (c7/1000)^(1/7)-1. So Ending Value/Beginning Value to the (1 over Years) power -1. In this case negative 5.6%
You can calculate the true time-weighted return using the method described here:
en.wikipedia.org/wiki/Time-weighted_return#Formulae
where: r is the "true time-weighted return" of the portfolio ... (see link)
Applying your returns year-on-year produces a balance at the end of 2014 of €1,056.64.
The time-weighted compound return is 0.05664 or 5.664%.
This result could have been arrived at directly from the final balance, but if you had withdrawn or added funds in the intervening years (at the valuation date), the time-weighted return method would account for that in the calculation.
Incidentally, the calculation can be done in Mathematica like so:
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