Hi,
Suppose you are investing several times into a single stock, mutual fund, etc. What is the proper way of calculating the interest rate? How would one annualize it? What is the name for this calculation?
For example, at the beginning of the year, a stock is $100 and at the end it's $110. The stock has gone up 10%. However, suppose you bought a share of it at the $100 and then, in the middle of the year, another share at $150. So, you invested $250, though in the end, you only have $220. Obviously, the interest rate that you see, when you are making regular investments, is different from the reported interest rate.
One possible solution is to simply consider the final value as compared to the amount of money invested. Continuing the example above, this would give a rate of $220 / $250 - 1 = -12%. Is this the right calculation? The reason I am unsure is that this return is not annualized since the second investment is made mid-year. How would I annualize the calculation?
Thanks.
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