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October 15th, 2017, 11:59 AM   #1
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Equation Help

Hello
trying to do a calculation to anualaize growth for an incentive plan

i have a fixed value (meaning the relationship was owned for 12 months by one person) and a variable
for the fixed value for example i used this an illustration

i took ownership for a portfolio that was worth 65,000 on Jan 1 at the end of the year it was worth 71,000
i used this calculation
71,000*(12/12)-65,000*(12/12)/(65,000*(12/12))= 9.23% growth
i inherited some new clients mid year worth 25,000 and at the end of the 6 months they were worth 21,000. so i tried this calculation

21,000*(6/12)-25,000*(6/12)/(25,000*(6/12)) which for this i got (16%)
which i am not sure is right
also if it is how would i then blend the scores to get their true growth

ty
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October 15th, 2017, 01:11 PM   #2
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Quote:
Originally Posted by bflan0524 View Post
i took ownership for a portfolio that was worth 65,000 on Jan 1 at the end of the year it was worth 71,000
i used this calculation
71,000*(12/12)-65,000*(12/12)/(65,000*(12/12))= 9.23% growth
You may find this way simpler:
b = beginning (65000)
e = ending (71000)
g = % growth (?)

g = e/b - 1 = 71000/65000 - 1 = 1.0923 - 1 = .0923 or 9.23%
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October 15th, 2017, 01:12 PM   #3
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Quote:
Originally Posted by bflan0524 View Post
Hello
trying to do a calculation to anualaize growth for an incentive plan

i have a fixed value (meaning the relationship was owned for 12 months by one person) and a variable
for the fixed value for example i used this an illustration

i took ownership for a portfolio that was worth 65,000 on Jan 1 at the end of the year it was worth 71,000
i used this calculation
71,000*(12/12)-65,000*(12/12)/(65,000*(12/12))= 9.23% growth.

i inherited some new clients mid year worth 25,000 and at the end of the 6 months they were worth 21,000. so i tried this calculation

21,000*(6/12)-25,000*(6/12)/(25,000*(6/12)) which for this i got (16%)
which i am not sure is right
also if it is how would i then blend the scores to get their true growth

ty
Both the "12/12" and the "6/12" above cancel so have no effect.

Cleary 21000- 24000 is negative 3000. Divided by 25000, -3000/65000 is -12%, not 16%. Since that is for half a year, the "annualized" loss is -24%, 2 times -12%.

To combine the two, "weight" each by the time interval. The first was for one year, the second for 1/2 year. ((9.23)(1)+ (-24)(1/2))/(3/2)= (9.23- 12)/(3/2)= (-2.77)(2/3)= -5.54/3= -1.85... This is a 1.85% loss.
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