*! version 1 feb2013
help irr

Title

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

Syntax

irr varname
[if] [in]

Description

irr Calculates 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

irr uses the following conventions (for a unique internal 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

varname must be a vector containing a stream of periodic cash flows.
The first entry in varname should be the initial investment (I0) as a negative number.

Example

Find 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 yearly 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 cf
Internal Rate of Return = 0.12006 (12.006%)

Saved results

irr saves the following in r():

Scalars

r(irr) internal rate of return

r(NPV) net present value

Author

Maximo Sangiacomo
Email: msangia@hotmail.com