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If I have a specific amount of money. For example 1000€ at the beginning of the 2008 year.

-65.55  2008
 91.25  2009
 17.74  2010
-42.87  2011
 18.32  2012
-18.82  2013
 56.57  2014

How much money i will have in the final of 2014, assuming the YTD in this year, just for learning purposes.

In the excel, there is any function to calculate this? Basically i want to know how can i find the Compound return effect.

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    are those numbers in Euros or percent return each year? – JTP - Apologise to Monica Sep 12 '14 at 16:13
  • @JoeTaxpayer The return by year. – user455318 Sep 12 '14 at 16:50
  • "The return" still doesn't specify percentage or currency amount. – Chris W. Rea Sep 14 '14 at 12:58
  • @ChrisW.Rea is the percentage from morningstar. – user455318 Sep 15 '14 at 8:14
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At the end of 2014 you would have 666€ in your example, assuming that the values you have are the annual return. They way you have it laid out One way you can do it is create another column where you adjust the annual returns to =(A1+100)/100). Then just use the Product function on that column * 1,000, so =Product(C1:C7,1000)

To get the compound effect just use the formula = (c7/1000)^(1/7)-1. So Ending Value/Beginning Value to the (1 over Years) power -1. In this case negative 5.6%

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  • You seem to have understood the OP's question. Can you explain what it has to do with compound interest? – dg99 Sep 12 '14 at 16:07
  • OP has returns each year. Down 65%, up 91% etc. The seven year return is -33.3% which is 5.6%/yr compounded for 7 yrs. – JTP - Apologise to Monica Sep 12 '14 at 17:53
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You can calculate the true time-weighted return using the method described here:

http://en.wikipedia.org/wiki/Time-weighted_return#Formulae

where: r is the "true time-weighted return" of the portfolio ... (see link)

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Applying your returns year-on-year produces a balance at the end of 2014 of €1,056.64.

The time-weighted compound return is 0.05664 or 5.664%.

This result could have been arrived at directly from the final balance, but if you had withdrawn or added funds in the intervening years (at the valuation date), the time-weighted return method would account for that in the calculation.

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Incidentally, the calculation can be done in Mathematica like so:

enter image description here

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