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Reader Question: How Do I Calculate the Periodic Return on a Negative Number?

By JLP | July 16, 2010

Just received this comment on this post. The question:

Came across this post and had a question….how do you calculate your PRR for the time period when the Annualized PRR is a negative number??

When you enter a negative number into the Excel IRR function you get an error because you can’t raise a negative number to a power (i.e. -8.43% ^ (180/365) = #NUM error).

Thanks for your help…great blog!

Okay, this is easy enough to address. The actual formula for calculating a periodic return is…

[(1 + ROR)# of days/365] – 1

In this case, it would like this:

[(1 – .0843)180/365] -1

[.9157.49315] -1

.9575 -1

-.0425 or -4.25%

The readers problem was that he tried to perform the calculation using -8.43% rather than its decimal equivalent.

Hope this helps.


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Topics: Financial Math Basics | No Comments »