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

*From*:**robert_weir@us.ibm.com***To*: Sheldon Britton <sab_orion@verizon.net>*Date*: Thu, 5 Jun 2008 14:50:02 -0400

Sheldon, your passage refers to "External Rate of Return" not "Economic Rate of Return". Are you saying that these are the same? I have other sources that say IRR and Economic Rate of Return are the same. I wonder if you are really trying to get to what portfolio managers called "time weighted return" versus "dollar weighted return"? The time-weighted calculation accounts for the fact that the amount of invested capital changes over time. If so, that is something to consider for a future ODF version. I'd also like to see portfolio alpha, beta and Sharpe ratio functions, as well and Markowitz optimization. -Rob Sheldon Britton <sab_orion@verizon.net> wrote on 06/04/2008 07:04:22 PM: > 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 single spreadsheet function...." > > 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)...." > http://www.allbusiness.com/personal-finance/investing/1035174-1.html > > 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 > spreadsheet, not as a single spreadsheet function. Consider: each of > 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 > further understanding about this issue. > > >

**References**:**Statistical SUMMARY() function***From:*Leonard Mada <discoleo@gmx.net>

**Re: [office-comment] Statistical SUMMARY() function***From:*robert_weir@us.ibm.com

**Re: [office-comment] Statistical SUMMARY() function***From:*Sheldon Britton <sab_orion@verizon.net>

**Re: [office-comment] Statistical SUMMARY() function***From:*robert_weir@us.ibm.com

**Re: [office-comment] Statistical SUMMARY() function***From:*Sheldon Britton <sab_orion@verizon.net>

**Re: [office-comment] Statistical SUMMARY() function***From:*robert_weir@us.ibm.com

**Re: [office-comment] Statistical SUMMARY() function***From:*Sheldon Britton <sab_orion@verizon.net>

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