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Fun Math: How to Calculate Returns Using Monthly Data
By JLP | October 1, 2007
Do you know how to calculate the year-to-date return on the S&P 500 Index using monthly returns?
No?
Well, it’s easy and fun and I’ll show you how. There may be another way to do this but this is the way I know how to do it.
First off, we need the monthly returns for the S&P 500 Index for 2007, which can be found here (download from the Standard and Poor’s website). To make things easy, I summarized the information in this graphic:
Next, we need to convert each month’s return to a decimal and add 1 to each one to get the factor (I believe that’s the word I’m looking for). So, it looks like this:
Finally, to get the year-to-date return of the S&P 500 Index, you simply find the product for the entire set of factors like this:
1.0151 × .9804 × 1.10112 × … = 1.0913
This step is very easy to do if you use Excel. Simply use the Product function. Or, if you are interested, you can download the simple spreadsheet I put together for this example.
Anyway, to get the YTD return subtract 1 from 1.0913 and multiply by 100 to get 9.13%, which is the exact number that S&P has on their website:
Pretty cool, isn’t it? Just make sure you have the date entered correctly. I used the returns through September.
On last thing: sometimes your numbers may not match up exactly. This is most likely due to rounding.
Now, isn’t math FUN?
Topics: Financial Math Basics, Investing |