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IRR formula for monthly cash flows

  1. #1
    MB Burgis
    Guest

    IRR formula for monthly cash flows

    What is the best formula to use when calculating an IRR for monthly cash flows?

    XIRR? or ((1+IRR(range,-0.01))^12)-1 ? or can just IRR be used?

    Thank you

  2. #2
    Niek Otten
    Guest

    Re: IRR formula for monthly cash flows

    Just IRR will do.
    You should realize that you get a monthly rate for monthly cash flows.

    --
    Kind regards,

    Niek Otten

    "MB Burgis" <MB Burgis@discussions.microsoft.com> wrote in message news:F5727909-A3BF-4AB4-BB90-56B2A6B742BE@microsoft.com...
    | What is the best formula to use when calculating an IRR for monthly cash flows?
    |
    | XIRR? or ((1+IRR(range,-0.01))^12)-1 ? or can just IRR be used?
    |
    | Thank you



  3. #3
    Fred Smith
    Guest

    Re: IRR formula for monthly cash flows

    Use IRR if your cash flows are regular (ie, every month). Use XIRR if they are
    irregular.

    --
    Regards,
    Fred


    "MB Burgis" <MB Burgis@discussions.microsoft.com> wrote in message
    news:F5727909-A3BF-4AB4-BB90-56B2A6B742BE@microsoft.com...
    > What is the best formula to use when calculating an IRR for monthly cash
    > flows?
    >
    > XIRR? or ((1+IRR(range,-0.01))^12)-1 ? or can just IRR be used?
    >
    > Thank you




  4. #4
    joeu2004@hotmail.com
    Guest

    RE: IRR formula for monthly cash flows

    "MB Burgis" wrote:
    > What is the best formula to use when calculating an IRR for
    > monthly cash flows? XIRR? or ((1+IRR(range,-0.01))^12)-1 ?
    > or can just IRR be used?


    IRR will compute a monthly rate. Ostensibly, your middle formula
    annualizes the monthly rate. However, academic papers that
    I have seen simply compute 12*IRR(...). Personally, I think your
    formula is more correct.

    XIRR does compute an annual rate. But it requires actual dates,
    which might be more data than you have or want to specify.
    Moreover, since XIRR counts actual days (1-Feb is 28 or 29 days
    before 1-Mar), the result is not exactly the same as your middle
    formula would return, although that might be your intent. On the
    other hand, I hasten to point out that XIRR's method of
    annualization is effectively the same as yours. Screw academia! ;-)

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