Reading 4 hours yesterday "financial modeling by Simon" also learning German for 1 hour using Rosetta Stone, totaling 60 hours.
Calculate the return rate (from Financial Modeling and http://www.investopedia.com/)
Annualized return rate is used to annualize the return which is gauged as year unit. There are 2 different situations : a. there is compounding rate in the investment vehicle; 2. there is no compounding rate situation
a. If there is compounding rate then we have to consider the compounding period: for example, the normal int rate is 10% and it is semi-year payment then the annualized is 2*((return/principle)^(1/2)-1) and the effective interest rate is (1+10%/2)^2-1; if it is quarter payment arrangement then it will be (1+10%/4)^4-1=10.38% and the annualized return is 4*((return/principle)^(1/4)-1). In IB of America people like using continuous compounding rate to calculate annual return: for example, that your $1,000 grew to $1,500 in 1 year and 9
months. The easiest—and most consistent—way to do this is to calculate the continuously compounded annual return. Since 1 year and 9 months equals 1.75 years, this return is: 1000*exp(r*1.75)=1500-->r=1/1500Ln(1500/1000)=23.169%.
b. If there is no compounding consideration then the annulized rate = (1 + cumulative return) ^ (365 / days held) - 1
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