On Wed, 21 Jun 2000 07:34:14 PDT, the world broke into rejoicing as
Rob Walker <[EMAIL PROTECTED]> said:
>
> >>>>> On Wed, 21 Jun 2000 01:09:02 -0500 (CDT), Dave Dribin
> >>>>> <[EMAIL PROTECTED]> said:
>
> Dave> I've just downloaded GnuCash 1.4.0, and I'm very impressed! I
> Dave> am very interested in tracking my mutual fund and stock
> Dave> performance in GnuCash. I would like to be able to calculate my
> Dave> return on investment (ROI) of my mutual funds. This can be done
>
> When/if this feature makes it into gnucash, I would like to see an
> example of what you are talking about. It seems like a good thing to
> compute, but I have no idea what you are talking about. :-)
Essentially, you take a stream of cash flows, associated with periods,
some positive, some negative, and determine a discount rate that allows
it all to net to zero.
You basically take the n flows, use them as the factors associated with
a polynomial in x, of degree n, where:
0 = Flow1 * x^0 + Flow2 * x^2 + Flow3 * x^3 + ... + Flown * x^n
Solve that for x, using some root-finding algorithm such as the
Secant Method, or perhaps Newton's Method, and you get some set
of values for x.
The IRR is either x-1, or 1-x, depending on point of view.
The thorny problem is that for n>2 there may be multiple possible
rates of return, corresponding to there being multiple roots for
the polynomial.
At any rate, it's all pretty well-understood, and it should not be
tough to compute an IRR given a well-defined set of cash flows.
--
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