help irr-------------------------------------------------------------------------------

Title

irr-- Calculates the (periodic) internal rate of return for a series of periodic cash flows

Syntax

irrvarname [if] [in]

Description

irrCalculates the (periodic) internal rate of return for a series of periodic cash flows. These cash flows do not have to be constant, however, the cash flows must occur at regular intervals, such as months or years (if the cash flow payments are monthly, then the resulting rate of return is multiplied by 12 for the annual rate of return).

Definitions

irruses the following conventions (for auniqueinternal rate of return):¤ Net Current Value should be greater than zero:

-I0 + CF1/(1+0)^(1) + CF2/(1+0)^(2) + ... + CFN/(1+0)^(N) > 0

¤ Each Cash Flow value should be greater or equal to zero:

CFi >= 0

Input Arguments

varnamemust be a vector containing a stream of periodic cash flows. The first entry invarnameshould be the initial investment (I0) as a negative > number.

ExampleFind the internal rate of return for a simple investment with a unique positive > rate of return. The initial investment is $100,000 and the following cash flows represent the y > early income from the investment.

. list t cf if t<=5, sep(0) noobs+----------------+ | t cf | |----------------| | 0 $ -100,000 | | 1 $ 10,000 | | 2 $ 20,000 | | 3 $ 30,000 | | 4 $ 40,000 | | 5 $ 50,000 | +----------------+

. irr cfInternal Rate of Return = 0.12006 (12.006%)

Saved results

irrsaves the following inr():Scalars

r(irr)internal rate of returnr(NPV)net present value

AuthorMaximo Sangiacomo

Email:msangia@hotmail.com