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  3. Introduction to R for Finance

Exercise

Financial returns (1)

Time for some application! Earlier, Lore taught you about financial returns. Now, its time for you to put that knowledge to work! But first, a quick review.

Assume you have $100. During January, you make a 5% return on that money. How much do you have at the end of January? Well, you have 100% of your starting money, plus another 5%: 100% + 5% = 105%. In decimals, this is 1 + .05 = 1.05. This 1.05 is the return multiplier for January, and you multiply your original $100 by it to get the amount you have at the end of January.

105 = 100 * 1.05

Or in terms of variables:

post_jan_cash <- starting_cash * jan_mult

A quick way to get the multiplier is:

multiplier = 1 + (return / 100)

Instructions

100 XP
  • Your new starting cash, January's return, and January's return multiplier have been defined for you.
  • Use them to calculate post_jan_cash.
  • Print post_jan_cash.
  • What if the return for January was 10%? Calculate the new jan_mult_10.
  • Calculate post_jan_cash_10 using the new multiplier!
  • Print post_jan_cash_10 to see the impact of different interest rates!