How To Find Return From Investment Banks (Both Compounded & Non-Compounded)

~`~`~How To Find Return From Investment Banks!~`~`~

Alrighty, I've been asked a a few times the past few days on how to figure out return from interest with investment banks and things similar in nature, so here is how I figure those problems out

A note before reading, this thread is full of colors.... literally there was some intense color coding going on when I wrote this up... Each color means the same thing throughout the entire thread so if the color orange represents the amount paid, any other orange text is showing where the initial amount paid would go when calculating your return.

~~~Non-Compounded Interest~~~

Non-Compounded Interest - Is a constant return from the interest rate on the initial amount no matter how long.... so 10% per day non-compounded of 100m would be 10m each day for however long and it adds 10M everyday no more or less

The formulas!

(Amount Paid){1+(interest rate)}^(Number of days)

Example

100m for 3 days at 10% interest

(100m){1+.1}^(3)=130M returned


Or easier way...

(Amount paid)(Interest rate)=X
X(Number of days)=Y
Y+(Amount paid)=Amount returned

Same Example

(100m)(.1)=10M
10M(3days)=30M
(30M)+100m=130M returned

~~~Compounded Interest~~~

Compounded Interest - This is when the return from the interest rate adds onto itself thus increasing the return with every day, so 10% compounded of 100m for 2 days.... the first day it's 10% of 100m so 10m is added... meaning 110m would be returned... for the 2nd day you would take 10% of 110m which is 11m and then the 3rd day you take 10% of 100M+10m+11m=121M which is 12.1M added etc etc

The Formulas!

Day 1: (Amount Paid){Interest Rate}=A
Day 2: (Amount Paid+A){Interest Rate}=B
Day 3: (Amount Paid+A+B){Interest Rate}=C
Return After 3 Days = (Amount Paid+A+B+C)
And so on until you reach the final day of investment

This is the most work intensive way but provided you don't do any rounding it is the most exact way.

So lets say this example..

100M for 3 days at 10%

Day 1: (100M){.1}=10M
Day 2: (100M+10M){.1}=11M
Day 3: (100M+10M+11M){.1}=12.1M
Return After 3 Days = (100M+10M+11M+12.1M)=133.1M


Note these next 2 ways are approximations only, NOT EXACT ANSWERS

(Amount Paid){1+(Interest Rate/Number of days)}^(Number of days*Number of days)

Notes on my simplifications:
This Color={Interest Rate/Number of days}
This Color={Number of days*Number of days}
This Color={1+Answer for this color}^Answer for this color

So using the same example...

(100M){1+(.1/3)}^(3*3)=
(100M){1+.0333333333333333}^(9)=
(100M){1.34327}=
~134.327M
(I rounded a bit... for more exact answers don't round at all )

Or....

Note in this formula I use the constant "e" which has a value of ~2.71828182845905
(Amount Paid)e^{Interest Rate*Number of days}

Notes on my simplifications:
This Color={Interest Rate*Number of days}
This Color=e^Answer for this color

So using the same example...

(100M)e^{.1*3}=
(100M)e^{.3}=
(100M){1.35}=
~135M

The issue with this method is that it isn't as exact as the first method because of the constant "e" as well as other factors that would take much much longer to explain in detail for everyone to understand.

You get brownie points for all that color coding.

You get migrane points from me! Good job!

I've stickied this thread as I'm sure it will be of great use to people who are about to start up an investment bank.

Daba wrote:You get brownie points for all that color coding.

Thank you I suppose Daba

SmokinCats wrote:You get migrane points from me! Good job!

You wonder how coding all this was xD

Cald wrote:I've stickied this thread as I'm sure it will be of great use to people who are about to start up an investment bank.

Cheers Cald

I added this to my favorites. I will definitely use these ways.

+rep

Holy crap... thats a lot of words

Ah the wonders of mathematics...

Yeah, I can see how this guide would be useful, and the colour coding is really nice too.

+rep to you, nice in depth guide and it looks like you put a lot of time and effort into it as well

Good work. I found non-compounded easy enough when I opened my lending thread but compounded is just a mind fuck to think about!

Pretty colours too

I didn't even bother to read it, lol. That's partly because I know how it works and because this seems "overexplained" to me, lol. I'm currently working on my own project to create a calculator for this (the application is coded in C++ and I suck at C++).

OoOoO pretty.

I usually just pull numbers off the top of my head... but I guess I could try a formula every now and then.

krakenbul wrote:I didn't even bother to read it, lol. That's partly because I know how it works and because this seems "overexplained" to me, lol. I'm currently working on my own project to create a calculator for this (the application is coded in C++ and I suck at C++).

Better overexplained than underexplained

Snow wrote:OoOoO pretty.

I usually just pull numbers off the top of my head... but I guess I could try a formula every now and then.

I don't know why but I got a good laugh from this one.....


For those noting all the colors.... yes I put a decent amount time into it... xD ~1.5hours of coding.. xD I wasn't 100% focused but still

i still hate maths but +rep for the help

VERY colorful and VERY helpful! Thanks for the information, Lucky

Lucky wrote:

The formulas!

(Amount Paid){1+(interest rate)}^(Number of days)

Example

100m for 3 days at 10% interest

(100m){1+.1}^(3)=130M returned

I think there's a mistake there.

If you try your example, 100M (1+0.1)^3 = 100M * 1,331 = 133.1M
Which doesn't work.

Shouldn't it be : Amount Paid(1+(interest rate*Number of days))

If you use that forumal, it works: 100M (1+ (0.1*3)) = 100M (1.3) = 130M

+rep if it helped

Not sure where the term non-compounded is from; there is Compounded Interest and Simple Interest.

A=Investment
i=Interest rate (as a decimal, 10% = 0.10)
n=# of days

Simple Interest:
Profit = A*i*n
Total Return = A(1+i*n)
Source/Calculator

Compound Interest:
Profit = A*(1+i)^n - A
Total Return = A*(1+i)^n
Source/Calculator

The calculator assumes the interest rate is given as interest per year, which is why the compound is annual as oppose to daily

This is good to know. Easy maths, but still. Thank you for your contribution.

Hey, im new to this forum, where do i invest into people and how? also is it safe?

Hey, im new to this forum, where do i invest into people and how? also is it safe?

Im Smarticle wrote:Hey, im new to this forum, where do i invest into people and how? also is it safe?

You better read this:
http://www.smokinelite.com/t42715-rules-for-this-section
http://www.smokinelite.com/t38255-how-to-stay-safe

so is this an alternate money making method for the lender(s)?

SO COOL now i just have to get rid of my headace amd try

Or this version, with your example:

NON-COMPOUNDED:
-To find the amount of money you'll be getting every day, multiply the interest rate times the amount paid. (.1*100=10)
-Multiply your answer by the number of days in the investment to get to get the total amount that you will gain. (10*3=30)
-Add this on to the amount paid to get what the banker should give back. (30+100=130)

COMPOUNDED:
1. Multiply the amount of money paid by the investment rate, then add your answer back to the amount paid. (100*.1=10. 10+100=110)
2. Now, for the second day, it will be as if you had invested 110m with the same interest rate. Repeat step 1. (110*.1=11. 11+110=121)
3. Repeat this process for as many days as are in the investment. (3rd day: 121*.1=12.1. 12.1+121=133.1)

I think I mist invest this way... cuz I don't know if I can do flipping...