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Simplified Ann ROI calculation

Started by Peter, April 06, 2020, 11:00:00 PM

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larrydag

So I've been playing with LC data these past few days.  I've never liked the fact that LC doesn't provide the whole monthly history of the notes.  So I wanted to try to create a simplified annualized ROI based on the cumulative data given.  I basically want to use the NPV and IRR methods classically used in finance.

Metrics used to calculate IRR

Loan Amount
Payment  = Total Payment to Months On Book Ratio =  Total Payment /  parallel minimum of Term and Months to Last Payment
Periods = Term

The idea behind the Total Payment to Months On Book Ratio is to estimated an loan annuity payment.  The higher the payment the better the note return.  Obviously chargeoffs will lower this payment amount.

Once IRR is calculated I annualize by (1 + r)^12 - 1

This is obviously a simplified method but allows for quicker analysis of notes.  Open to suggestions on improvement.

Attached is a chart which matches somewhat closely to the LC Net Ann Returns.


AnilG

You should be able to calculate IRR using loan payment file.

TravelingPennies

Not necessarily.  It isn't straightforward because you don't have each monthly payment.  You only have the total payments on the loan to date.

TravelingPennies


TravelingPennies

The loan data that LC provides.  It only shows the current amounts of the loan life to date.  It doesn't show each monthly payment value.  Granted to your point can back into those periodic amounts but essentially you are just coming up with another assumption.    LC is the one that only knows the true ROI of each note. 

TravelingPennies

I think you are referring to historical loan data files while I was referring to payment file. LC provides monthly payment file. Look under additional statistics to find it.

What you are trying to do is something similar what I did before LC started providing payment file. There are edge cases where your estimate technique will fail. Consider those edge cases, for example loans defaulting after one or few payment, no payments on loans, loans fully paid after one or few payments, loans paid off early, loans that paid late, loans that made partial payments, loans that had recoveries, and so on.

https://forum.lendacademy.com/index.php?topic=21639.msg61767#msg88888888Quote"> from: larrydag on April 08, 2020, 08:21:58 PM

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