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

  1. #1

    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.

    Many Thanks in advance!





  2. #2
    Elite Member
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    Quote Originally Posted by nicholasbcli View Post


    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.

    Many Thanks in advance!




    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.
    "Unique Answers Don't Care How You Find Them." - Many may have said it, but I hear it most from me.

  3. #3
    Elite Member
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    Feb 2004
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    Ottawa, Ontario
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    Quote Originally Posted by nicholasbcli View Post
    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
    I'm just an imagination of your figment !

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