Internal Rate of Return (IRR) Calculator - Computes the IRR Based on a Fixed Recurring Cash Flow or No Cash Flow
Internal Rate of Return (IRR) Calculator
years months
Deposit
Withdrawals
IRR Calculate Results
IRR:
Cumulative Cash Flow:
Total Return:
Gross Return:
Detailed Period Breakdown
| Period | Deposits | Interest | Ending balance | Accumulated Deposits | Accumulated Interest |
|---|
| Period | Deposits | Interest | Ending balance | Accumulated Deposits | Accumulated Interest |
|---|
Investment Growth Over Time
How to Use This Calculator
- Enter Initial Investment: The amount you initially invest or the starting value of your investment.
- Set Ending Balance: The final value of your investment at the end of the holding period.
- Define Holding Period: Specify the duration of your investment in years and months.
- Choose Cash Flow Type:
- Deposits: Regular additions to your investment
- Withdrawals: Regular distributions from your investment
- Set Amount and Frequency: Define how much and how often cash flows occur (monthly, quarterly, etc.)
- Select Timing:
- Beginning: Cash flows occur at the start of each period
- End: Cash flows occur at the end of each period
- Calculate: Click the button to compute your IRR and view detailed analysis.
Pro Tip: The calculator automatically updates results as you change inputs, making it easy to explore different scenarios and compare investment strategies.
IRR Formula and Mathematical Foundation
The IRR calculation is based on the Net Present Value (NPV) formula, but instead of calculating NPV for a given discount rate, we solve for the discount rate that makes NPV equal to zero.
Basic IRR Formula:
0 = CF₀ + CF₁/(1+IRR)¹ + CF₂/(1+IRR)² + ... + CFₙ/(1+IRR)ⁿ
General Form:
0 = Σ[CFₜ / (1+IRR)ᵗ] for t = 0 to n
Where:
• CF₀ = Initial investment (typically negative)
• CFₜ = Cash flow at time t
• IRR = Internal Rate of Return (what we solve for)
• t = Time period
• n = Total number of periods
0 = CF₀ + CF₁/(1+IRR)¹ + CF₂/(1+IRR)² + ... + CFₙ/(1+IRR)ⁿ
General Form:
0 = Σ[CFₜ / (1+IRR)ᵗ] for t = 0 to n
Where:
• CF₀ = Initial investment (typically negative)
• CFₜ = Cash flow at time t
• IRR = Internal Rate of Return (what we solve for)
• t = Time period
• n = Total number of periods
The Initial Principal Is 5,000. After 5 Years, the Ending Balance Is 10,000. What Is the Internal Rate of Return (IRR)?
The internal rate of return (IRR) is 14.870% per year.
References
Government Financial Education Resources
- Investor.gov - The SEC's Office of Investor Education and Advocacy (OIEA) seeks to provide individual investors with the information and tools they need to make sound investment decisions.
- SEC Resources for Investors - The SEC provides a variety of services and tools to help people invest wisely and avoid fraud.
- SEC Office of Investor Education and Advocacy - The SEC's investor education program produces Investor Alerts and Bulletins to warn investors about particular scams or risky products trending in the marketplace.
Additional Financial Education Tools
- SEC Financial Calculators - A Compound Interest Calculator to determine how much your money can grow or how much you need to save to reach a specific amount over time.
- Introduction to Investing - Comprehensive investing basics from the SEC
- Protect Your Investments - Learn how to avoid investment fraud and scams
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