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Subject: Re: [office-comment] Statistical SUMMARY() function

• From: Sheldon Britton <sab_orion@verizon.net>
• To: robert_weir@us.ibm.com
• Date: Wed, 04 Jun 2008 19:04:22 -0400

Hi Robert,

With regards to the following; Re: "From what I can gather the term
"economic rate of return" has multiple meanings. In IDB use, where it is
abbreviated as EIR not ERR, it uses a calculation involving shadow
pricing to account for economic opportunity costs. To me this sounds
like something that one would do in a model in a spreadsheet, not as a

Incidentally, the below attached information which discusses this very
subject was gleaned some time ago on the web and reads in part as follows:-

"Please note that for each of the five investments (A-E) in Exhibit 1,
no reinvestment of the intermediate cash flows is necessary nor required
to earn the 15% IRR on the periodic and usually ever-changing internally
invested amounts of capital. In fact, to "reinvest" the two intermediate
cash flows (CF^sub 1-2^ in these three-period investments) would be to
make two additional and separate investments external to the original
three-period investments. Any rate of return calculated to include these
reinvested amounts, combined with the original cash flows appropriately
would/should be called the External Rate of Return (ERR). Hence,
profiling the IRR and defining the ERR unequivocally settles the
reinvestment rate controversy. The IRR does not assume nor implicitly
require the reinvestment of the intermediate cash flows of an
investment, while the ERR does assume and explicitly require the
reinvestment of the intermediate cash flows of an investment.

Said ERR may also be called a "portfolio IRR," because it is the
geometric mean (weighted average) rate of return for more than one
investment held for varying time periods, since each successive
reinvested cash flow is invested for one time-period less than that of
the previous reinvested cash flow.

The generic term ERR is preferred since it encompasses all of the
variations on the same theme, namely the adjusted IRR, the modified IRR,
the terminal value IRR, the Estate Management Rate of Return (EMRR) and
even the Financial Management Rate of Return (FMRR)...."

from the foregoing therefore, one would assume that the "generic term
ERR is preferred" and undoubtedly represents an "spreadsheet function"
(now absent) that must/should now be integrated and listed formally as such.

Thank you.

Best regards,

Sheldon.

robert_weir@us.ibm.com wrote:
> Hi Sheldon,
>
> >From what I can gather the term "economic rate of return" has multiple
> meanings.  In IDB use, where it is abbreviated as EIR not ERR, it uses a
> calculation involving shadow pricing to account for economic opportunity
> costs.  To me this sounds like something that one would do in a model in a
> your cash flows could involve an arbitrary discount based on what are
> essentially project-specific judgement calls as well as addition costs to
> reflect social or environmental costs.  Do you think these assumptions
> would make a cohesive spreadsheet function?  If so, what would the
> function look like?  What would its parameters be?
>
> Regards,
>
> -Rob
>
> Sheldon Britton <sab_orion@verizon.net> wrote on 06/04/2008 03:33:26 PM:
>
>
>> Hi Robert,
>>
>> Thank you very much for the timely response and the opportunity to
>> raise the question.
>>
>> From working experience I am now also taking the opportunity to
>> forward documentation (see attachment) which describes the
>> procedures for the return/computation of Economic Rate of Return
>> (ERR) values as distinct from those of the return/computation of
>> Internal Rate of Return (IRR) as defined in formula listings of
>> OpenOffice's Calc, IBM's Lotus 1-2-3, IBM's Lotus Symphony's 1.0
>> SpreadSheet et cetera et cetera.
>>
>> Re: "So how to turn an IRR into an ERR? I suppose the joke answer
>> would be "Invest in sub-prime  mortgages"; Wow... (was that "ENRON"
>> or "sub-prime" ;-) !
>> Response: Which better company to be with other than the one (IBM)
>> which now have the responsibilities for the Federal Housing Loans
>> origination port folio; and, beyond these let us look at the "
>> services opportunities" (delivery solutions...) in the world's
>> energy and commodities markets (food...) among others in that IBM's
>> "Lotus Symphony" like "OpenOffice" can be freely obtained. \$\$\$ :-D
>>
>> Also, "But seriously, my understanding is that Internal Rate of
>> Return, as we define it in OpenFormula, is the same as what some
>> practitioners call "Economic Rate of Return".
>>
>> The attached documentation which describes "Economic Rate of Return"
>> employed by the Inter-American Development Bank ( http://www.iadb.org
>> ) I am quite sure will undoubtedly provide some clarification and