Kamran Khan, Lecturer at Mashal Institute of Higher

1
Education
Dollar return vs. percentage return
Dollar Returns

• The dollar return is the difference between the final value and
the initial value in nominal terms
• Dollar returns do not take into account things like the time value
of money or the time frame of the investment.
• In security markets, the dollar return of the security is the
difference in the final market price and the market price at which
it was purchased.
• Dollar returns are useful for determining the nominal amount
that the firm’s assets will change.
 Tr= (Gain from Investment - Cost of Investment+D) / Cost of
Investment
• example, suppose we invested $2,000 in stock. in 2010 and
sold his stock shares for a total of $,3000 one year later. The
investor receive 300 dividend per year.
Percentage Returns

• Percentage returns show how much the value of the investment

has changed in proportion to the size of the initial investment.

• it does not only matter how much money was earned on the
investment, it matters how much was earned in proportion to
the cost.
1. Total return: Total returns calculate how much the value of the
investment has changed since it was first purchased
Return= Vf−Vi+D/Vi

2. Annual return. annual returns calculate how much the value

changed each year. When the length of time of the investment is
one year, the total and annual returns are equivalent.
IRR,
CAGR . compound annual growth rate (CAGR)
Compound Annual Growth Rate (CAGR)

• The compound annual growth rate (CAGR) is a useful

measure of growth over multiple time periods.
• It can be thought of as the growth rate that gets you from the
initial investment value to the ending investment value if you
assume that the investment has been compounding over the
time period.
• The formula for CAGR is:
CAGR   =   ( EV / BV)1 / n - 1
where:
EV = Investment's ending value
BV = Investment's beginning value
n   = Number of periods (months, years, etc.)
Let's assume you invest $1000 in Fund XYZ for five years. The year-end value
of the investment is listed below for each year.
Year    Ending Value
  
1             $   750
   2               1,000
   3               3,000
   4               4,000
   5               5,000
• We can calculate the CAGR of the investment as:
• CAGR = ( 5,000 / 1,000)1/5 - 1 = .37973 = 37.97%
IRR
Year Cash Flows  At 18% At 25%

0 -10000 – 10000.00 -10000

1 5000      4237.29 4000

2 5000      3590.92 3200

3 5000      3043.15 2560

Total          871.36 – 240.00