Quantifying Returns: CAGR and XIRR on r/IndiaInvestments Wiki

CAGR: Point-to-Point Annualized Returns

Mon, 01 Jan 0001 00:00:00 +0000

CAGR: Point-to-Point Annualized Returns

Intro

So far, we’ve covered various computations, which mostly involved algebraic sum / multiplication / subtraction.

Except, these aren’t enough.

We need to add new tools in our arsenal to fully unlock the powers of excel, to aid with our day-to-day financial decision-making process.

Learning about CAGR is only the first step towards that.

CAGR

CAGR (Compound Annual Growth Rate) is a measure of how fast a value has been growing, assuming this value is probably a result of a compounding process.

A Gentle Introduction to XIRR

Mon, 01 Jan 0001 00:00:00 +0000

A Gentle Introduction to XIRR

Intro

In the previous chapter, we’ve covered CAGR and how it can offer insights into rate of price growth of common listed securities.

In this chapter, we expand on this; and measure rate of growth of portfolios, which is consisted of set of articles.

For an investor, asset’s growth and portfolio growth are two different aspects; as we’re about to learn.

XIRR

XIRR (eXtended Internal Rate of Return) is a generalized form of portfolio return measurement, that takes into account both entry and exit transactions.

A Rigorous Introduction to XIRR

Mon, 01 Jan 0001 00:00:00 +0000

A Rigorous Introduction to XIRR

Intro

Now that we’ve gained some ideas about XIRR (eXtended Internal Rate of Return), it’s time to formally introduce XIRR.

XIRR is tightly coupled with concept of discounting.

Discounting can be thought of as the opposite of compounding.

Discounting and XIRR

Popularly, compounding formula is written as $$P\times(1+r)^t$$.

Instead of $$P\times(1+r)^t$$, where $$(1+r)^t$$ is being multiplied with the value of P; in discounting, we’d do the opposite, to denote decay over time.