Calendarization/benchmarking is the process of converting a stream of future cash flows, whether from an investment or an asset, into equivalent amounts at a specific point in time. This allows for a more accurate comparison of different investments or assets.

For example, let’s say an investor is considering two different investment options: a one-year bond with a 5% annual interest rate and a two-year bond with a 6% annual interest rate. To compare these investments, the investor would need to convert the future cash flows into present-day values. This can be done using a discount rate, which represents the time value of money.

Using a discount rate of 3%, the one-year bond would be worth $957.38 today (1,000 x (1 + 0.05) / (1 + 0.03) = $957.38), while the two-year bond would be worth $914.29 today (1,000 x (1 + 0.06) / (1 + 0.03) ^ 2 = $914.29). In this example, the one-year bond is the better option as it has a higher present-day value.

Calendarization/benchmarking is also used in portfolio management. For instance, a portfolio manager may want to compare the performance of their portfolio to a specific benchmark, such as the S&P 500. To do this, the manager would convert the future cash flows of the portfolio into present-day values and compare them to the present-day value of the S&P 500. This allows for a more accurate comparison of the portfolio’s performance.

Calendarization/benchmarking can also be used in the real estate market. For instance, a property owner may want to compare the potential rental income of a property to the present-day value of a similar property. To do this, the owner would convert the future rental income into present-day values using a discount rate and compare it to the present-day value of the similar property. This allows for a more accurate comparison of the potential rental income and the present-day value of the property.

In summary, calendarization/benchmarking is a useful tool for comparing different investments or assets. It allows for a more accurate comparison by converting future cash flows into present-day values using a discount rate. This can be applied in various industries, such as finance, portfolio management, and real estate.