# Formual for Calculating Rate of Return on Endowment



## Taxboy (Aug 23, 2006)

I've got an endowment about to mature. Any experts out there who can provide the formula so I can see roughly what rate of return I've made please


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## Avanti (Jan 17, 2006)

Won't that be calculated by (edowment maturity amount)/(total paid in) * 100


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## Taxboy (Aug 23, 2006)

Thanks for that - I just wondered if that would provide the annual rate effectively bearing in mind you start with nil and only make the final payment before maturity.

There again perhaps I'm trying to make it too complicated 

I'm looking to see if it has outperformed a savings account over the time and if so by how much


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## Avanti (Jan 17, 2006)

Taxboy said:


> Thanks for that - I just wondered if that would provide the annual rate effectively bearing in mind you start with nil and only make the final payment before maturity.
> 
> There again perhaps I'm trying to make it too complicated
> 
> I'm looking to see if it has outperformed a savings account over the time and if so by how much


You would have to have the historic interest rates o make a comparison, I can tell you though on one of my accounts I gained £4 on over £5k of savings


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## DiscoDriver (Oct 27, 2009)

Hi

Sure - you just want the Internal Rate Of Return. If you have Excel and the history of the payments into the endowment this is incredibly easy to calculate: assuming that payments in are made at regular intervals (eg monthly or yearly) I would create a table in Excel (eg for a 5 year endowment paying in monthly it would be in A1:A60 where the 60 is calculated from 5 yr * 12months = 60 pay periods) and the final redemption payment in A60 too (or A61 depending on when payment received) then you can calulcate very easily using:

=IRR(A1:A60)

Note: payments out need to be negative and payments in positive. It does assume payments are made at regular intervals - if irregular it gets a little more complicated and you will need to use the XIRR function.

IRR returns the periodic nominal rate - to get an annualised rate you need to compound it up:

=(1+IRR(A1:A60))^12 -1

which returns the annualised percentage (format the cell as a percentage to see it eg as 10% or whatever). Again, the above assumes monthly periods.

Richard


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