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How do you calculate rate of return on monthly cash flows
Can I use the IRR formula for internal rate of return calculations for
monthly cash flows? If so do I multiply the result by twelve? If not how do I calculate the annual IRR using monthly cash flows? Thanks for your help. |
#2
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Almost all financial functions work with the *periodic* interest rate. In
other words, only you know the period. Excel simply calculates an interest rate given the cash flows. If your periods are monthly, and you want an annual rate, yes, you can multiply by 12. However, this would not compound the return. Suppose your monthly IRR is 1%. If you invested $100 at 1% per month, you would end up with more than $112 because of compound interest. If you want the compounded annual return, the formula is =(1+i)^12-1 -- Regards, Fred Please reply to newsgroup, not e-mail "Philly Fan" <Philly wrote in message ... Can I use the IRR formula for internal rate of return calculations for monthly cash flows? If so do I multiply the result by twelve? If not how do I calculate the annual IRR using monthly cash flows? Thanks for your help. |
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