30 years: Financial markets trader
As investors or traders, the main objective is to make a profit. Returns can be calculated for a holding period or on an annualised basis, and on a continuously compounded basis or a discrete basis. In this video, Abdulla will provide a formula for calculating returns on a discrete basis for both the holding period and an annual percentage return.
As investors or traders, the main objective is to make a profit. Returns can be calculated for a holding period or on an annualised basis, and on a continuously compounded basis or a discrete basis. In this video, Abdulla will provide a formula for calculating returns on a discrete basis for both the holding period and an annual percentage return.
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4 mins 37 secs
Calculating returns can be expressed as a percentage gain or loss on an investment. Investors main objective is to make a profit - a positive return on their investment. These returns can be calculated using the formulae outlined below.
Key learning objectives:
Describe the basic properties of calculating returns
Identify the relevant formulae for calculating holding period returns and annualised returns
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Holding Period Return = Sell price / Buy price - 1
Or
Holding Period Return = (Sell price - Buy price) / Buy price
For a price series
Holding Period Return = End value / Start value - 1
Investor B has a greater return in a shorter time, and thus has clearly done better.
If the holding period is less than a year, we use the top formulae. And if the holding period is greater than a year, we use the bottom one.
Annual Return = Holding period return x 365 / holding period (days)
Or
Annual Return = (Sell price / Buy price)(1/years held) - 1
(Multi-period TVM formula re-arranged to solve for r)
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