First, the concept:
Internal rate of return, also known as internal rate of return, refers to the actual expected rate of return on project investment. In essence, the discount rate can make the net present value of the project equal to zero. IRR satisfies the following equation: The general method to calculate internal rate of return is successive test.
When the net cash flow after the project is put into production is in the form of ordinary annuity, the internal rate of return can be directly calculated by using the present value coefficient of annuity, and the formula is: (P/A, IRR, n)= 1/NCF.
Internal rate of return is the discount rate that the total present value of capital inflow is equal to the total present value of capital flow and the net present value is equal to zero. If the computer is not used, the internal rate of return will be tried with several discount rates until the discount rate with net present value equal to or close to zero is found.
Second, the formula:
1, calculate the present value coefficient of annuity (p/A, FIRR, n) = k/r.
2. Look up the annuity present value coefficient table and find two adjacent coefficients (p/A, i 1, n) and (p/A, i2, n) and the corresponding i 1, i2, satisfying (p/A, il, n) >1; k/R & gt； (p/A，i2，n).
3. Calculate FIRR by interpolation:
(FIRR-I)/(i 1—i2)=[K/R-(p/A，I 1，n)]/[(p/A，I2，n)—(p/A，il，n)]
Applicable to the investment field of internal rate of return
1, real estate investment:
In real estate investment, IRR is used to measure the internal rate of return of investment. Through IRR, investors can understand the potential benefits and risks of investment. For example, IRR can help investors compare the advantages and disadvantages of different real estate projects when buying real estate for rent or sale.
2. Stock investment:
IRR is also widely used in stock investment. Investors can evaluate the potential benefits and risks of stock investment through IRR. For example, IRR can provide a way to measure investment performance when calculating the holding period return rate of stocks.
3. Fund investment:
It is very important for investors to know the IRR of the fund. IRR of the fund can help investors understand the historical performance and future potential of the fund. By comparing IRR of different funds, investors can make more informed investment decisions.
4. Futures and other derivatives:
For these high-risk and high-return investment tools, IRR is an important measure. Through IRR, investors can understand the potential returns and risks of investment and better manage their portfolios.
5. Personal financial planning:
IRR is also widely used in personal financial planning. For example, when making a savings plan or an investment plan, IRR can help investors understand the potential returns and risks of investment. In addition, IRR can also be used to measure the performance of other personal financial products, such as annuity insurance and whole life insurance.