ROI calculation

[fundman247]

Hi Mark,

I am a bit confused as far as ROI investments are concerned and would like some comments on the example below.

I make an investment of $1000 23 Oct 2013 at a price of 1000. I sell on 24 Oct 2013 at a price of 1010. I think the ROI is 365% as it is 1% return for 1 day. FM report the ROI = 3678%

I make an investment of $1000 23 Oct 2013 at a price of 1000. I sell on 25 Oct 2013 at a price of 1010. I think the ROI is 182.5% as it is 1% return for 2 days. FM report the ROI = 514%

I make an investment of $1000 23 Oct 2013 at a price of 1000. I sell on 26 Oct 2013 at a price of 1010. I think the ROI is 122% as it is 1% return for 3 days. FM report the ROI = 236%

I make an investment of $1000 23 Oct 2013 at a price of 1000. I sell on 23 Nov 2013 at a price of 1100. I think the ROI is 120% as it is 10% return for 1 month. FM report the ROI = 207%

I make an investment of $1000 23 Oct 2013 at a price of 1000. I sell on 23 April 2014 at a price of 1100. I think the ROI is 20% as it is 10% return for 6 months. FM report the ROI = 21%

The last calc after 6 months seems to be spot on.

I have tried the maths on the example of the formula with start value + investments made = end value of zero + interest and it does not help to get to the ROI reported by FM

You're comments would be appreciated.

Regards.
fundman247

[Mark]

Hi fundman247,

I think the common point of confusion in those examples is that the returns compound. So, if you gain something, and continue earning at the same rate, your original investment, plus the earnings are both being increased in value. The example that you had that showed the closest to your expectations was also the longest time period, so the increment effects of compounding were the smallest, thus the smallest error from your expectations.

You might also want to turn on ROI yield logging under "Options / General Preferences... / Yields" and you can see the yield equation for any ROI calculations performed.