Joined

·
19 Posts

I have not had the pleasure of compounding a 100% loss with leverage, but I am putting together a demonstration on the perils of leverage for an evening class that I teach on index investing. I realized when trying to calculate annualized returns for a 110% loss (due to leverage) that it may not even be possible.

The Actual/365 Fixed formula that I use falls apart when the loss is a large negative value:

Here's some of my JavaSript code (simplified somewhat):

days = Date.daysBetween(startDate, endDate);

//Factor = Days Between / 365

Math.pow(Math.abs(endPortfolioValue) / startPortfolioValue, 365/days) - 1

Plugging in the following numbers:

>>Math.pow(-1000 / 10000, 365/(365*2)) - 1

I get this weird looking result:

-1.#IND

Do people ever annualize 100%+ losses. Would anyone want to!!!? :tongue-new:

Rob