Imagine you invest $10,000 this year in a fund that promises the following returns over the next 5 years:
Your money would grow thusly.
It would be wrong to simple average the rates per year since this ignores any compounding. We use the function "RATE" from excel.
Wrong approach: (10 + 8 + 6 + 4 +2) / 5 = 6%
Correct approach: =RATE(5 , 0 , -10000 , 13358.44) = 5.962%
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