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Excel Finance Class 94: Period (Holding) Returns For Less Than 1 Year, APR and EAR - YouTube
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welcome to finance an excel video number
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94 if you want to download this workbook
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for chapter 10 click on the link
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directly below the video and scroll all
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the way down to the Excel class Excel
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finance class section hey we got to talk
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about period returns when you hold a
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stock for less than a year in our first
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example we'll see months and then we'll
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see one for days so we have a stock when
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we hold it for four months exactly we
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bought it at time at time zero at fifty
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two point two five and then we sold it
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in four months so the first trick is we
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want to calculate the period return what
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was our return for just this four months
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so we sold it at fifty three so we
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simply say equals end / begin minus one
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so that we earned one point four three
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percent for our four month period now in
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order to calculate a EP our annual
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percentage rate that's the nominal rate
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and the effective annual rate we are
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gonna have to calculate the number of
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periods per year now it looks like I
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already did it here I didn't mean to do
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that we're gonna simply say equals 12
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divided by our four months and that
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tells us how many periods because if we
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have whatever return it is for whatever
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number of periods if we're gonna
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calculate an annualized rate we need to
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know how many periods there were earning
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this rate here now we can simply use the
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nominal function sorry I'm sorry not the
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normal function we simply for APR the
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definition of APR is hey take the period
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rate times the number of periods so four
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point one three now since we're
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compounding an interest is being added
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and our number of periods is greater
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than one the effective annual rate will
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be slightly larger now the effect
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function is great but it works perfectly
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if this number of periods
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year is an integer and it is for us here
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so I'm and in our next example it won't
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be I'm going to use the nominal rate APR
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and then number of periods alright so
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there's our effective annual rate it's
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going to be a little bit bigger than our
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APR anytime you have n number of periods
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greater than three now let's see this
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example here so we bought a stock 32
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days right so same example here but we
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held it I'm just using the same numbers
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here but well it's different stock right
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but we hold it for 32 days and we make
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it increases a little bit so let's
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figure out our period return same
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formulas before n divide if I begin
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minus 1 so it's the same return but over
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a shorter period of time all right now
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the trick is we got to figure out a
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number of periods now I'm going to
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assume that it's 365 it would be easy
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enough if it was a leap year to
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calculate 366 but now I'm going to take
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365 and divide by 32 so we're saying how
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many 30 d-32 day periods are there in
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one year here we have number of periods
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per year which throughout this class
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we've called n that is not an integer so
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the effect function will not work we can
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still do a PR definition is number of
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periods times the period rate Wow
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hey look that's looking good and then
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the EI are we're gonna say not effect
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we're simply going to take open
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parenthesis 1 plus our period rate and
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raise it to carat the actual number of
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periods and then subtract 1 and so 17.65
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is our effective annual rate if you use
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the effect and some people do use it
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anyway because it's all maybe you're
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estimating right from this data here but
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if we took our not under nominal
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and did this all the effect doesn't if
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you go up to help it'll tell you it
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truncates this so it'll use eleven so
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we're gonna get a slightly smaller
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number alright we'll see you next video
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