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September 17th, 2008, 09:43 PM   #11
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Re: Calculating Return

Originally Posted by STV
Its 520% with the return of the $2000
Yes, 520% interest or 6.2 times your investment after a year.

Originally Posted by STV
But the point is that there are a number of methods to calculate a percentage return. In practice continuous returns only get used in academic finance, in the investment business it is discrete compounding.
Continuous interest was actually popular for a while in banking, but it's since gone away. The original problem didn't specify, and since it seemed a 'build your own' program I though continuous interest would be most appropriate -- you're not waiting until the 1st to buy/sell stock, right? Of course if the original rate was designed with once-yearly compounding in mind the rate would need to be adjusted down.
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September 18th, 2008, 09:36 AM   #12
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Re: Calculating Return

This is basically a bond problem. What you have is a 520% bond that pays coupons weekly whose redemption date is unknown. Thus,
Originally Posted by STV
It all depends,

how much you step on the dope?

do you have to pay protection?

How many corners do you control?
Great stuff. And I thought I had a good laugh watching Robin Williams' antics on Letterman's show this morning. With any luck, your initial impression on the following problem is roughly the same as mine.

"A man pays off a $30000 bet, interest and principal, in 10 equal installments made on Dec. 1st for 10 years. Find the amount of his annual payment if interest is charged at 12% per annum compounded annually."

My impression: If a man just incurred a $30,000 debt from a bet, Iím betting he wonít live long after making an arrangement with his (probably mob) bookie like paying it off in 10 equal installments over a period of 10 years.
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