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Bare with me, as I don't know how to properly describe what I'm asking for. Please edit the question if it can be asked in a way that uses correct vocabulary. I might be just asking for an compound formula. If so I apologize.

Ask

I'm looking for the name of a accounting or finance concept/formula that reflects the considerations in my following story.

Story

I invested in a companies bond (Solar City) that promised 6% interest with 3 year maturity. But a month later another company (Tesla) acquired the company and bought out the debt. I received all 3 years of interest once the merge completed. A total of two months after investing.

Problem

Since 2% gains over a week of investing is different from 2% APY for a CD, I wanted to factor the time it took to realize the yield into my ROI. It would be a plus if the formula considered a discount rate over time somehow. That way investments with longer terms but the same interest rate can be properly evaluated.

So its like calculating compound interest but where the compounding term is the dependent variable.

Goal

I want to compare a slice of investment performance to other investments that are defined by APY.

My Attempts

(((AmortizatizedBalance-BeginningBalance)/BeginningBalance) * 365/DaysInvested)-(DiscountRate * DaysInvested)

  • Sorry for the word salad. This concept has been gnawing on me for years. – Gabriel Fair Sep 1 '17 at 2:00
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    Are you asking how to compare gains from investments with different time lengths? – Ben Miller Sep 1 '17 at 2:20
  • Yeah that is a good way of basically describing what I'm looking for. Am I overthinking this? – Gabriel Fair Sep 1 '17 at 12:35
  • This question would fit perfectly in the Accounting site (currently a proposal in Area51: area51.stackexchange.com/proposals/113560/… ) – Jacob Sep 20 '17 at 1:12
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Since you are trying to compare corporate bonds that have a defined coupon over the specified time of the bond. Why not use a simple Net Present Value (NPV) calculation. Refer: Net Present Value (NPV)

You could use the discounting factor as the current repo rate of your central bank.

As I said, this would be a simple fast measure (not considering risk rating of the bonds, inflation and other considerations). Take a notional 1000 as invetment in each instrument and calculate the NPV, higher it is better the investment.

Another method, in terms of percentage return would be Internal rate of Return (IRR). Though the calcualtionis a bit more complicated, it would give you a percentage figure.

Note, the above 2 measures are used when the cashflow over the time period is known. It will not work for instruments where the cashflow/value over different time are not known. Like stocks.

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