If I may barge in...
The IRR represents the actual return of an investment over an arbitrary
period of time (usually annualized).
Say, for example, that you invest $100 and, after two years, you have
$120. Your overall return is 20%. If your interest rate was constant
over the two-year period and you never took any money out or put any
money in, your annualized IRR, that is the percentage that best
approximates how much you've made on a yearly basis, is approximately
9.544% and is calculated through the simple formula
IRR = (EndAmount / StartAmount) ^ (1 / NumberofPeriods) - 1.
IRR = (120 / 100) ^ (1 / 2) - 1 =~ 0.95445
If it sounds like a straightforward calculation... it isn't, because you
rarely have a clean-cut situation like that. Most of the time, you have
to deal with variations in the cash flows (interest payments,
reinvestments, disbursements, taxes, and so forth) and partial periods.
In some cases, the problem can only be solved by interpolation and the
calculation can become quite complex.
Cheers,
Marco
On Mon, 2003-02-17 at 16:52, Greg Donald wrote:
> On Mon, 17 Feb 2003, Jonathan Pitcher wrote:
>
> >This process involves an IRR Calculation. Or Internal Rate of Return.
>
> Sorry, I don't think there are any accountants lurking on the list, so
> please explain what the actual calculation for an IRR should be.
>
>
> --
> Greg Donald
> http://destiney.com
--
------------
Marco Tabini
President
Marco Tabini & Associates, Inc.
28 Bombay Ave.
Toronto, ON M3H 1B7
Canada
Phone: (416) 630-6202
Fax: (416) 630-5057
Weblog: http://blogs.phparch.com
--
PHP General Mailing List (http://www.php.net/)
To unsubscribe, visit: http://www.php.net/unsub.php
