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%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%
% %
% AccuRATE v.2.1 %
% Vision Software Systems %
% Copyright 1992 (c) %
% %
% %
%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%
BACKGROUND
----------
Performance reporting is one of the most important, and most often
abused aspects of investment management. Both the investor and the
investment manager are very interested in knowing how a particular
portfolio performed over a given period. Unfortunately, there are
numerous methods of computing rates of return and the results can
vary tremendously. Additionally, factors such as cash flows can
further distort an already cloudy picture. Recognizing the potential for
abuse and the magnitude of this problem, the Association for
Investment Management and Research (AIMR) issued guidelines in
1992 outlining acceptable standards and practices for performance
reporting. This was an important step to standardizing performance
reporting throughout the industry. This is the road-map, and for large
institutions with standards in place, the changes were easy to make.
For the thousands of small and medium sized investment managers,
change is more cumbersome. The required calculations are often time
consuming and complex, placing a burden on existing staff.
Researching methodology, setting procedures, ensuring accuracy,
designating staff, etc., are added burdens.
AccuRATE was written by investment professionals to ease the
burden of performance reporting. These investment professionals
analyzed and researched the various methodologies recommended by
AIMR. Next, they used what they felt were the most practical
methodologies to construct AccuRATE. This program was designed
to be easy to use, eliminating the need for additional staff or training.
Originally designed as a proprietary tool for these managers,
AccuRATE is now being marketed nationally to investment
management firms. A modest pricing structure makes this tool
available to firms of any size.
FEATURES
--------
- Easy to use
- No training required
- Works on any IBM compatible PC
- No expensive hardware required
- VGA Graphics (supports all video types)
- Network compatible
- Calculates time weighted returns
- Calculates internal rates of returns
- Provides an annualized return matrix
- Four methods of calculating investment returns
- Output is suitable for client presentations and includes your company
name.
- Handy pop-up calculator and calendar available on any screen
- Full help screens
- Priced for any budget
- Complete printed manual detailing use and methodology
INSTALLATION
------------
AccuRATE v.2.1 has been simplified to consist of only one main file.
If you have a hard disk you may copy the file named AccuRATE.exe to
it. If you do not have a hard disk AccuRATE will run from a floppy.
Note that for optimal performance, AccuRATE should be run from a
hard disk.
STARTUP OPTIONS
---------------
To start the software, simply type AccuRATE. Under most
circumstances, this is all that is required. There are, however, several
startup options to allow you to fine tune the software. All startup
options are selected by adding them following the word AccuRATE
when starting the program.
S: SNOW SUPPRESSION Some monitors jump or display
"snow" when running certain software.
Should this occur with your monitor
when running AccuRATE, use the "S"
startup option (eg: AccuRATE -S).
M: MOUSE OPTIONS AccuRATE is fully mouse compatible.
The program will check to see if you
have a mouse and will automatically use
it. To disengage mouse support, follow
the "M" startup option with an "N"
(eg: AccuRATE -MN).
B: BIOS SCREEN WRITES Should you require bios screen writes
(not typical), you may force AccuRATE
to use them with the "B" start up
option.
VGA MODES AccuRATE will automatically detect
your video mode and use the best one
available. Several VGA modes are
available to choose from. To force the
use of standard VGA mode, use the
"V" startup option. To force the use of
28 line VGA, use the "2" option.
GENERAL OPERATION
-----------------
Starting the program will always place you at the main menu.
Additionally, you will be returned to the main menu following each
function. The cursor can be moved using either the arrow keys or the
mouse (if available). To select an option, highlight your choice by
moving the cursor to it and press enter. Alternatively, you may select
an option by pressing its corresponding number in the list.
Help is available at any time by pressing the "F1" key. The help
system consists of directions for movement as well as an overview of
each function. Scroll through the help system by pressing any key.
A handy pop-up calendar and calculator are also available at any time
by pressing the "F2" or "F3" keys respectively. The calculator is
especially handy for calculating cash flows. To exit either one of
these, press "Q" or the escape key.
Pressing the escape key will abort any function. Repeatedly pressing
the escape key will return you to the main menu.
INPUTTING DATA
--------------
After selecting a function (except for the return matrix) you will be
prompted to enter an account name, account number, and the period
dates. All of these fields are optional and will not impact any of the
calculations. Should you choose not to enter any of this data, press
the escape key and AccuRATE will skip this section. This information
is beneficial only if you will be printing your output.
You will automatically be placed in the first field requiring input. Input
data simply by entering the number and either pressing the enter key
or moving to the next field with the movement keys. At any time you
may move to a previous field and edit that data. To edit data, use the
backspace key to delete the erroneous data and then key in the correct
data. After pressing the enter key on the last data field, you will be
asked whether or not all your data is correct. It is a good idea to check
your data for accuracy at this point as the calculation is ready to be
made and you will no longer be able to edit your input. If you find an
error, select "NO" at this prompt and you will again have the
opportunity to edit your input. At any time during input, you may abort
the session by pressing the escape key (or page down key).
PRINTING
--------
AccuRATE is designed to be compatible with almost any printer.
Following each function, you will be asked whether or not you would
like printed output.
METHODOLOGY AND USE OF SPECIFIC MODELS
OVERVIEW
--------
There are several acceptable methods of computing investment return.
AccuRATE includes four different methods, each suitable in different
situations. In general there are two broad methodologies used to
compute returns, dollar weighted (internal rates of returns) and time
weighted. Internal rates of return compute the actual return earned on
the portfolio and on any net contribution for the time held in the
portfolio. Because this return figure reflects the actual experience of
the portfolio, internal rates of return are appropriate for such purposes
as actuarial assurance of meeting pension obligations. However,
because this calculation is highly dependent on the size and timing of
cash flows, it is not appropriate for purposes of comparison to other
portfolios or market indices, and may obscure measurement of the
portfolio manager's skill. Since cash flows are generally out of the
manager's control, the manager should not benefit or be penalized by
their impact. Time weighted rates of return are gaining popularity and
are required for reporting under the 1992 AIMR performance reporting
standards (see Appendix A). Time weighted returns, in effect, net out
the impact of cash flows resulting in a return figure which reflects the
performance of the underlying investments. In theory, every time a
cash flow is made, new market values are generated and return figures
are computed for that sub-period. Since this requires daily valuation of
all assets, several acceptable methods are used to net out cash flows
and approximate the theoretical methodology. Time weighted returns
are valid for comparison to other portfolios and indices as they reflect
events in the managers control. Because distortions due to cash flows
have been eliminated, these returns reflect how the manager
performed, not how the account actually performed.
The result is that there are two measures of performance. One,
internal rate of return, is the best measurement of how the account
actually performed. The other, time weighted return, is the best
measurement of how the manager performed.
TIME WEIGHTED RATE OF RETURN MODULE
-----------------------------------
This is the preferred method for computing return. This method
requires that monthly market values be available for the portfolio. The
methodology used is a day-weighted approximation of actual time
weighted return. This method is often known as the modified Dietz
method and is an acceptable method according to 1992 AIMR
guidelines. The formula is:
Return = EMV - BMV - flow
----------------
BMV + FV
Where FW= sum of the weighted flows, each being multiplied times
a factor, Wi, equal to (CD + 1 - D)/CD, where CD= calendar days in
the period and D= day of ith flow, formula assumes EMV includes
income.
When entering data, enter beginning and ending values as positive
figures, and enter cash flows from the portfolios perspective. This
means that if money was added to the portfolio, it should be entered
as a positive cash flow. Additionally, you must enter the day of the
month on which the cash flow took place. You may enter up to four
cash flows each month. Should you have more than four cash flows,
combine them and use a weighted average day of the month. Leave
all unused cash flow slots blank. After entering the December market
value, returns will automatically be calculated. Should you wish to
compute returns for a shorter period, simply press escape (or page
down) after entering the market value of the last month of data.
Output consists of the one month time weighted return for each period
and the cumulative return through each period.
LINKED QUARTER MODULE
---------------------
The linked quarter module is to be used when only quarterly market
values are available. In any performance calculation, the longer the
time period, the less precise the calculation. Ideally, monthly values
should be available and the time weighted return module used.
Because this is not always possible, this module is included for use
when only quarterly values are available. This module computes both
a dollar weighted and a time weighted rate of return for each quarter.
Users have the ability to input monthly cash flows. To enter cash
flows, combine all cash flows for the month and enter as one figure.
Consistent throughout AccuRATE, beginning and ending market
values should be entered as positives, and cash flows entered from the
portfolios perspective (i.e. money going out of the portfolio is a
negative). After entering the fourth quarter ending value, returns will
automatically be calculated. Additionally, users may abort input at any
time to calculate periods less than one year by pressing the escape key
(or page down).
The time weighted return calculation is identical to that in the first
module with the exception that cash flows are assumed to have taken
place at the midpoint of each month. The dollar
weighted return is a standard internal rate of return calculation with
each quarterly return compounded (linked) to an annual figure. The
dollar weighted formula is as follows:
2 n
0 = CF + CF /(1+i) + CF /(1+i) + ... + CF /(1+i)
0 1 2 n
The difference in the dollar and time weighted calculations will be equal
to the impact of cash flows.
CLASSIC IRR MODEL
-----------------
As previously discussed, internal rate of return measures the exact
performance of the account including all distortions due to cash flows.
This module was included so that a standard, full period, internal rate
of return could be calculated for any term from one to twelve months.
This computation will be highly dependent on the size and timing of
cash flows. After selecting this module, select the term you desire.
Enter data in the standard fashion (from the perspective of the
portfolio). The methodology for this method is identical to that used
for the dollar weighted calculations in module 2.
RETURN ANNUALIZER
-----------------
This module was included to provide an annualized return matrix for
periods from one to ten years. The matrix is often seen displayed
"upside down" making it difficult to read. This module prints out a ten
year matrix according to the format presented in the 1992 AIMR
presentation standards outline.
First enter the year of your last data point. Next enter each period's
return figure. You may enter any number of periods from one to ten
(leave any unused slots blank).
DISCLAIMER
----------
While AccuRATE has been thoroughly tested and every effort has
been made to ensure its accuracy, no express warranties are made
regarding the accuracy of the information in this manual or the
information generated by AccuRATE. In no event will Vision or its
associates be liable for any consequential or incidental damages,
including any lost profits or lost savings, or for any claim by any party.
%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%
To order a copy of AccuRATE, mail completed order form with your check or
money order. Order form is file labeled "order.doc".
%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%