Lynch Interactive Cash Received
I found a nice surprise in my son’s Coverdell Education Savings Account tonight. I received the cash for the 85 shares of Lynch Interactive I purchased back on October 10, 2005.
As you might remember, this reverse split transaction was approved on November 16, 2005. This was a very typical going private transaction. It took a little less than three weeks for them to send out the cash after the transaction was approved. I only wish my other going private transactions would go so quickly.
Let take a quick look at my returns. In less than two months, I earned $353.04 in profit for a total gain of 16%. If I annualize that return, I calculate that my Lynch Interactive investment produced a 185% APY. Not bad given my EmigrantDirect account earns 4.0% APY.
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185% APY ???
How do you calculate annualized return ?
Bought on 09/10/05. Sold on 12/1/05. That’s 53 days.
16% / 53 * 365 = ~110% APY
P.S. You can give me access to Members only area if I am right :)
The first thing to note is that I bought LIC on 10/10/05 not 09/10/05, and I get determined that 52 days passed during that period.
APY = 100 [(1 + Interest/Principal)^(365/Days in term)-1] according to the FDIC.
APY=100[(1+353.04/2,191.45)^(365/53)-1]
APY=185%
If you use 53 days instead of 52, the answer is 180% APY.
The easy way to do the calculation is to use the XIRR formula in Excel. That’s the way I originally did it. I appreciate you checking on my work. If you find an error next time, I’ll give you a week of access to Contributor’s Corner. :-)
The calculation is correct.
The problem in applying APY to this transaction is counting compaunding in. I.e. if you would take all proceeds and reinvest them for next 53 days. Repeat for full year.
This way assumes full reinvestment for the exact same periods of time. That is kind of synthetic.
For me more valuable is annualzied rate of return. So I can compare this transaction to other transactions regardless of time invested.
Frank, you make a good point regarding APY. Maybe the annualized rate of return is more appropriate for individual transactions. Thank you for the suggestion.
I think that idea does deserve rewarding. I’ll send you information on accessing Contributor’s Corner for free this week.