# How to work out Effective Yield for Investment Plans with different payout time?

• 03-08-2018, 03:24 PM
nicholasbcli
How to work out Effective Yield for Investment Plans with different payout time?

Dear All, I have a question on how to calculate the effective yield of an investment and if someone can help to create an excel to solve this for me it will be the best!
Firstly both are lump sum investments.

Investment A - 1 Time Lump Sum Investment of \$95,727.30. The returns will be 10 Years later. The investment return will be paid out in the beginning of the 11th Year.
The payout will be \$981.33 Monthly for a period of 15 Years. The total returns will be \$176,640.

Investment B - 1 Time Lump Sum Investment of \$95,544.00. The returns will be 10 Years later. The investment return will be paid out in the beginning of the 11th Year.
The payout will be \$720 Monthly for a period of 15 Years. At the end of the 15th Year, there will be a maturity payout of \$76,906. the total returns will be \$206,506.

What will be the effective yield for this 2 investments.

• 03-08-2018, 03:43 PM
tkhunny
Quote:

Originally Posted by nicholasbcli

Dear All, I have a question on how to calculate the effective yield of an investment and if someone can help to create an excel to solve this for me it will be the best!
Firstly both are lump sum investments.

Investment A - 1 Time Lump Sum Investment of \$95,727.30. The returns will be 10 Years later. The investment return will be paid out in the beginning of the 11th Year.
The payout will be \$981.33 Monthly for a period of 15 Years. The total returns will be \$176,640.

Investment B - 1 Time Lump Sum Investment of \$95,544.00. The returns will be 10 Years later. The investment return will be paid out in the beginning of the 11th Year.
The payout will be \$720 Monthly for a period of 15 Years. At the end of the 15th Year, there will be a maturity payout of \$76,906. the total returns will be \$206,506.

What will be the effective yield for this 2 investments.

These appear to be standard Bond / Coupon arrangements. Where are you stuck? For starters, the payment streams are sufficiently complicated that it is unlikely you will be able to solve directly for the total investment return. You will need an iterative or numerical method to find a solution. MS Excel might do that if you now how to use that functionality. Draw a cash flow map and share your result.
• 03-08-2018, 07:13 PM
Denis
Quote:

Originally Posted by nicholasbcli
investment a - 1 time lump sum investment of \$95,727.30. The returns will be 10 years later. The investment return will be paid out in the beginning of the 11th year.
The payout will be \$981.33 monthly for a period of 15 years. The total returns will be \$176,640.

Rounding your amounts to 95,700 and 981
r = return rate
This equation needs to be solved for r:
981[(1 + r)^180 - 1] / r = 95700(1 + r)^300

As TK says, cannot be solved directly...numeric method required...
For this one, r = ~.0029708 monthly,
which means effective annual rate of 1.0029708^12 - 1 = ~.0362 (or 3.62%).

It'll all look like this:
Code:

```month  payment  interest  balance   0                      95700   1              284    95984   2              285    96269 ...  119              403    136213  120              405    136618  121    -981      406    136043  122    -981      404    135466 ...  299    -981        6      978  300    -981        3      000```
Noooooo....I ain't touching the other one :cool: