Its similar to finding an APY, but the difference is that the rate of return is changing every quarter.
For example: if I return 25% every quarter, that doesn't mean I had a 100% return because I haven't taken into account the compounding interest.
I want a formula that DOES take that compounded interest into account. ThanksHow do I calculate an annual percentage yield based off quarterly returns?
The best method to compute such a return is to use IRR (internal rate of return) using a spread sheet like Excel. For instance, you would lay out your cash flows like this:
-100 (Initial Investment at period 0)
+6.25 (first quarter's return at 25% per annum)
+6.64 (second quarter's return at 25% per annum)
+7.06 (third quarter's return)
107.50 (fourth quarter's return + return of your principal)
The internal rate of return for this series of cash flows is the yield which would make the net present value of the cash flows equal to zero. For these cash flows, the return is 27.3%
Note: I assumed the rate of return was 25% per annum in this example, not 25% each quarter (or over 100% per annum).How do I calculate an annual percentage yield based off quarterly returns?
The easiest way is to just find out how much you earned and divide by the amount you started with and multiply by 100 for the percentage.
e.g. Start with 1000, and the end of 4 quarters my dividends equal 185, then my APY is 18.5%How do I calculate an annual percentage yield based off quarterly returns?
Excel will probably do it with one of it's financial functions..
long hand
base figure say 100
Q1 return say 20% = new base (100+20) = 120
Q2 return say 10% = new base (120+120*.1))=132
Q3 return say 10%= new base (132+(132*.1)=145.2
Q4 return say 25%=145.2+(145.2*.25)= 171.5(Total Return)
Return = (171.5/100)-1 i.e. (Total Return/Original Base-1)
= 71.5% in this example.
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