Unannualized ROI

[cir]

Hi Mark,

I am trying to verify that Fund Manager unannualized ROI calculation is correct. I created a test security and purchased $100 at a price of $1 on 9/25/2018. This is a private security so I always use a share price of $1. The security was valued at $120 on 9/30/2018 so I entered a dividend reinvestment of $20. When I ran reports that reported the ROI it showed 24.5% when I expected 20%. Please advise. Thanks.

[Mark]

Hi cir,

Note that your report date range is 8/25/18 - 9/30/18 (not 9/25/18 - 9/30/18). If you look under "Options / Report Preferences... / Portfolio Performance", I'm guessing your "Date Range For Yield Calculation" is set to "Period Owned Withing Report Date Range". (If it wasn't you would get an N/A or a much larger yield depending on your interpolation range settings). Therefore, your yield calculation is really being calculated from 9/25/18 to 9/30/18, despite the report date range setting. The reason you are seeing 24.5 and not the 20 I believe you're expecting is that when your yield date range is 9/25 - 9/30 this is 6 days, but you bought initially during 9/25, so FM only counts that as having been invested 5 days, as it was bought during the day, and not before the yield term started. (To be more precise would require knowing the time of day the purchase happened. So, it may be somewhere between 5 and 6 days actually, but FM treats them as if they were made at the end of the day in terms of counting days for yield calculations.) So, if you looked at the yield equation, it would be essentially:

120 - 100(1 + i)^(5/6) = 0

where i would be 24.5, and not 20. If you were to change the report date to start on 9/26 instead of 9/25, then the yield equation would be:

120 - 100(1 + i)^(5/5) = 0

and you would get the 20% number you're expecting.

You can turn on yield logging under "Options / General Preferences... / Yields / Log Calculation Details for ROI Yields", and then run your report (or just make any date change to an existing report, to force it to re-calculate), and then check your log file at "Help / Logs / ROI Yield Calculation...".