Please don't read too far into this post, especially the first paragraph. This is strictly a math question that I framed within an example. I am reading a book in which the author describes someones expectations of turning 10000 into 15000 in 3 months- in essence a 3-mo return (quarterly) of 150% is nearly 1000% annually. However I started to do the math and if I follow the ((1+rate)^no of periods )-1 * 100 I get approximately 3900%. If I just do simple compounding 10000* 1.5 = 15000 * 1.5 = 22500 =33750*1.5= $50625. That is 4 periods and then divide that by the original $10000 you get 500%. It seems with period returns of less than 100% the above formula works, but not with greater.; or am I doing something wrong? So I guess with period returns of greater than 100% how do you annulize those. And what is the correct answer to the example above.
If the account goes from 10K to 15K it is 50% not 150%. I think. Use 50% as rate and the result we be correct. You used 150%.
Ha. That could be it. Good catch. I got so caught up in the words I didn't consider the first step of the math. Thanks.
If you have any expectation or hope of averaging >20%/yr return on total capital, you ARE "doing something wrong". Historical probabilities of doing so are <1%.
Yes. Even considering 1000% annually is folly.... "strictly math" or not. Actual annual returns should be used in calculating "past annualized". Shorter time period calculations are irrelevant.
So if quoted a part of book and asked you a question about the grammar of a particular sentence "do drugs bill" you would say considering drugs is so stupid. Yet the entire time would fail to mention it appears the sentence may be missing punctuation and the b in bill should be capitalized. By the way the entire time the entire sentence is "don't do drugs bill. " My question was strictly about annual rates. For all you know it is a algebra book with various questions about annual returns. You have read entirely too far into the question and retuned zero value to my question.
In a strictly semantic sense, perhaps. I was trying to do you a favor with a dose of reality about the hope for exaggerated returns. I thought your inquiry was something more than just a math lesson. I apologize for "getting under your (thin) skin". Wasn't my intention.