rate of return

  • Thread starter Thread starter Guest
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G

Guest

How can you calculate the rate of return for a series of payments not
necessarily equal?
 
Yes you can. It's the XIRR function, which is part of the Analysis Tookpal
addin.
 
A.R.T. said:
How can you calculate the rate of return for a
series of payments not necessarily equal?
Click to expand...

There is a recurring misconception in the responses
to such questions.

Use IRR whenever the payment __periods__ are equal,
even if the payment amounts (aka cash flows) are
unequal.

Use XIRR whenever the payment __periods__ are
unequal, whether or not the payment amounts are
equal.

Your question is ambiguous with respect to which
case applies.

Note: If the payment periods are "equal", e.g. "once
a month", but interest is compounded daily, you might
want to use XIRR since each month contains a different
number of days (compounding periods).
 
You're correct that IRR was designed for situations with equal payment periods,
even if amounts are unequal. However, IRR returns a periodic interest rate (like
Rate does). So if your payments are quarterly, you get a quarterly interest
rate. This confuses a lot of people, because they want an annual rate, which is
why XIRR works so well for them.
 
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