How would you determine the annual return if I:
Started in Jan with $25K.
Made profit of $10K in the first 6 months.
Added new capital of $20K to the account in 1 Jul (so account is now $55K)
Made profit of $10K in the next 3 months.
Added new capital of $20K to the account in 1 Oct (account now $75K)
Made profit of $10K in the last 3 months.
Here are 3 possible solutions:
1. Total profit = $30K. Total capital put in = $65K. Return = 46.2%
2. Total profit = $30K. Time weighted capital = $40K. Return = 75%
3. Time weighted average of annualised return for each period. So period 1 = 40% over 6 months, period 2 = $10k/$55K over 3 months, period 3 = $10K / $75K over 3 months. Average to be ~71.5%
4. Similar to 3 above but exclude the compounding profits in calculating the annualised returns. This works out to be ~77.7%
I know this is mostly academic, but just wondering if there's an usual way of looking at it.