Return is past performance of the portfolio. It has nothing to do with what may happen to the portfolio today or in the future.

I respectfully disagree, Anil. Because for any loan that is still paying, calculating 'past' return requires to estimate how much it will pay in the future.

For instance, you invest $100 on a 13%, 36-months loan, that makes 3 net payments of $3.34. So the outstanding principal is now $93.07. What's your return?

(calculating ROI for the sake of simplicity, of course IRR would be more accurate):

- If you consider only the payments so far, your return is 3*3.34 / 100 - 1 = -99%

- If you add the outstanding principal, your return is (3*3.34 + 93.07) / 100 - 1 = 3%.

- If you add all the made and future payments, it's (3 + 33) * 3.34 / 100 - 1 = 11%

Here's the solution we came with at LendingRobot:

http://blog.lendingrobot.com/research/calculating-expected-return-of-note/