The basic problem is that the IRR formula is what’s called an nth root polynomial (n is the number of days in the IRR calculation). A one-year IRR calculation is a 365th root polynomial. (Remember that Quicken calculates daily IRRs and then annualizes these daily percentages.) Continue reading
Tag Archives: Mechanical
Online Investing: Some Mechanical Problems with the IRR
Now that you understand the basic logic of the IRR tool, you should know that the IRR, for all of its usefulness, isn’t flawless. Quicken (and every other investment record-keeper’s computer program) calculates a daily IRR and then multiplies this percentage by the number of days in a year to get an equivalent annual IRR. Continue reading