Modified Dietz method
The modified dietz method is like a special math formula that helps people figure out how much money they are making or losing on an investment. It works by taking into account the amount of money you put in, how long you keep it there, and any profits or losses you get from the investment.
Here's an example: Imagine you have $100 and you put it into a piggy bank. After a year, you take it out and see that you made $5 in interest. The modified dietz method helps you figure out exactly how much you made on that investment.
First, you need to figure out how long the money was in the piggy bank. A year has 365 days, so we'll use that number. We also need to figure out the average amount of money that was in the piggy bank during that year. Since you only had $100 to start with, that's the average.
Next, we need to figure out the rate of return, which is how much money you made compared to how much you had in the piggy bank. In this case, you made $5 on $100, so the rate of return is 5%.
Finally, we use the formula: modified dietz = rate of return x (number of days / 365) + 1. In this case, the modified dietz is 0.0538, or 5.38%.
So what does that mean? It means that you made 5.38% on your investment, taking into account how long the money was in the piggy bank and the rate of return you got. If you had put in more money or kept it in for longer, you can use the modified dietz method to figure out your return on that investment too.
Here's an example: Imagine you have $100 and you put it into a piggy bank. After a year, you take it out and see that you made $5 in interest. The modified dietz method helps you figure out exactly how much you made on that investment.
First, you need to figure out how long the money was in the piggy bank. A year has 365 days, so we'll use that number. We also need to figure out the average amount of money that was in the piggy bank during that year. Since you only had $100 to start with, that's the average.
Next, we need to figure out the rate of return, which is how much money you made compared to how much you had in the piggy bank. In this case, you made $5 on $100, so the rate of return is 5%.
Finally, we use the formula: modified dietz = rate of return x (number of days / 365) + 1. In this case, the modified dietz is 0.0538, or 5.38%.
So what does that mean? It means that you made 5.38% on your investment, taking into account how long the money was in the piggy bank and the rate of return you got. If you had put in more money or kept it in for longer, you can use the modified dietz method to figure out your return on that investment too.