Navigation: Templates > Guide to all Templates > Additional Libraries and Templates > Finance Library >====== IRR (internal rate of return) ====== | |
IRR(investment,cashflows,periods,rate)
IRR | Computes the internal rate of return on an investment. |
investment | A numeric constant or variable containing the initial cost of the investment (a negative number). |
cashflows[] | A single dimensioned DECIMAL array containing the amounts of money paid out and received during discrete accounting periods. |
periods[] | A single dimensioned DECIMAL array containing period numbers identifying the discrete accounting periods in which cash flows occurred. |
rate | A numeric constant or variable containing the desired periodic rate of return. |
IRR determines the rate of return on an investment (investment). The result is computed by determining the rate that equates the present value of future cash flows to the cost of the initial investment. The cashflows parameter is an array of money paid out and received during the course of the investment. The periods parameter is an array which contains the period number in which a corresponding cash flow occurred. The desired periodic rate of return (rate) for the investment is also specified. Investment should contain a negative number (a cost).
Periodic rate may be calculated as follows:
PeriodicRate = AnnualInterestRate / (PeriodsPerYear * 100)
Cashflows and periods MUST both be DECIMAL arrays of single dimension and equal size. The last element in the periods array MUST contain a zero to terminate the IRR analysis.
Return Data Type: DECIMAL
Internal Formulas:
The IRR function performs binary search iterations to home in on the return value. If more than 50 such iterations are required, a value of zero is returned.
Example:
CashFlows DECIMAL(18,2),DIM(1000)
CashFlowPeriods DECIMAL(4),DIM(1000)
InvestmentAmount DECIMAL(18,2)
DesiredInterestRate DECIMAL(31,15)
Return DECIMAL(10,6)
InvestmentTransactions FILE,DRIVER('TOPSPEED'),|
NAME('busmath\!InvestmentTransactions'),PRE(INV),CREATE,THREAD
KeyIdPeriodNumber KEY(INVTRN:Id,INVTRN:PeriodNumber),NOCASE,PRIMARY
Notes MEMO(1024)
Record RECORD,PRE()
Id DECIMAL(8)
PeriodNumber DECIMAL(8)
Date ULONG
Type STRING(20)
Amount DECIMAL(16,2)
END
END
CODE
CLEAR(CashFlows) !initialize queue
CLEAR(CashFlowPeriods) !initialize queue
CLEAR(InvestmentAmount)
CLEAR(TRANSACTION:RECORD) !initialize record buffer
DesiredInterestRate = INV:NominalReturnRate / (100 * INV:PeriodsPerYear)
transcnt# = 0
TRANSACTION:Id = INV:Id !prime record buffer
TRANSACTION:PeriodNumber = 0
SET(TRANSACTION:KeyIdPeriodNumber,TRANSACTION:KeyIdPeriodNumber) !position file
LOOP !loop for all transactions
NEXT(InvestmentTransactions) !read next record
IF ERRORCODE() OR TRANSACTION:Id NOT = INV:Id !if no more transactions
BREAK !break from loop
ELSE !else process transaction
transcnt# += 1
CashFlows[transcnt#] = TRANSACTION:Amount
CashFlowPeriods[transcnt#] = TRANSACTION:PeriodNumber
END !endelse process transaction
END !endloop all transactions
Return = IRR(InvestmentAmount,CashFlows,CashFlowPeriods,DesiredInterestRate)
Return *= (100 * INV:PeriodsPerYear) !normalize IRR to percent