The

Essential
Financial
Toolkit

Follow
Abenet Yohannes on 𝗟𝗶𝗻𝗸𝗲𝗱𝗜𝗻 🔔
To calculate the log return of asset A in period 1

To calculate the log return of asset A

in period 1, you type
=LN(1+B2)
hit ‘Enter,’ and you should obtain 4.9%.

Dr.Abenet Yohannes 2
Multiperiod Arithmetic Returns

• To calculate the 10-period return

of Asset A, you type

=PRODUCT(1+B2:B11)−1
• hit ‘Ctrl+Shift+Enter’ simultaneously,
and you should obtain 61.2%.

Dr.Abenet Yohannes 3
To calculate the terminal value

Calculate the terminal value of $100 invested in Asset A

at the beginning of period 1, passively held through the
end of period 10, you can type

=100*PRODUCT(1+B2:B11)
and hit ‘Ctrl+Shift+Enter’ simultaneously;
or you can type
=100*EXP(SUM(D2:D11))
and hit ‘Enter.’ Either way you should
obtain $161.2.

Dr.Abenet Yohannes 4
Arithmetic mean returns

To calculate the arithmetic mean return of

Asset A, you type

=AVERAGE(B2:B11)
hit ‘Enter,’ and you should obtain 5.2%

Dr.Abenet Yohannes 5
Geometric Mean Returns

To calculate the geometric mean return of

Asset A, you type
=GEOMEAN(1+B2:B11)−1
hit ‘Ctrl+Shift+Enter’ simultaneously, and you
should obtain 4.9%.

Dr.Abenet Yohannes 6
The standard deviation of returns

To calculate the standard deviation

of returns of Asset A, you type
=STDEVP(B2:B11)
hit ‘Enter,’ and you should obtain 8.0%.

Dr.Abenet Yohannes 7
The beta of an asset

To calculate the beta of Asset A, you

type
=LINEST(B2:B11,E2:E11)
hit ‘Enter,’ and you should obtain
0.85.

Dr.Abenet Yohannes 8
The correlation between the returns of two assets

To calculate the correlation between the returns

of Assets A And B, you type
=CORREL(B2:B11,C2:C11)
hit ‘Enter,’ and you should obtain 0.72.

Dr.Abenet Yohannes 9
The Net Present Value (NPV)

The cash flows (CF) of a hypothetical project that requires a $180,000

investment today and is expected to generate the cash flows over the next
seven periods. Assume that the appropriate discount rate for this project
is 10%. Then,

To calculate the NPV of this project, you type

=NPV(.1,B3:B8)+B2
hit ‘Enter,’ and you should obtain $ 28,051

Dr.Abenet Yohannes 10
The Internal Rate of Return (IRR)

To calculate the IRR of the project, you

simply type
=IRR(B2:B8)
hit ‘Enter,’ and you should obtain 14%.

Dr.Abenet Yohannes 11
 Follow
Abenet Yohannes on 𝗟𝗶𝗻𝗸𝗲𝗱𝗜𝗻 🔔 12
Dr.Abenet Yohannes