Use of the IRR Function in Excel

ID: Q59616

The information in this article applies to:

Microsoft Excel for Windows, versions 2.x, 3.x, 4.x, 5.0, 5.0c
Microsoft Excel for Windows NT, version 5.0
Microsoft Excel for Windows 95, version 7.0

SUMMARY

If you want to calculate the interest rate you would pay if you took out a loan for $1000 and paid it back in uneven amounts (for example, $500, $400, $300, $100) at even intervals, use the IRR (internal rate of return) function in Microsoft Excel.

MORE INFORMATION

Example

The format is


   =IRR(A1:E1)

where the spreadsheet reads as follows:


   A1:     -1000     B1:  500   C1:  400   D1:  300   E1:  100
   A2: =IRR(A1:E1)   B2:        C2:        D2:        E2:

This returns an interest rate of 14.49 percent.

IRR Function Description

The IRR function is used to find the discount rate that forces the current value of a project's inflows to equal the current value of its costs. This means that the IRR function will find the interest rate (or rate of return if lending money) that causes the present value of the inflows from an investment to equal the cost of the investment. It does this by setting the current value of the cash inflows equal to the current value of the cash outflows.

The IRR function is commonly used to compare one investment opportunity with another.

REFERENCES

"Microsoft Excel Functions and Macros," versions 2.x, pages 63-64

"Microsoft Excel Function Reference," version 3.0, pages 134-135

Additional query words: 2.00 2.0 2.01 2.1 2.10 2.2 2.21 2.20 3.00 3.0 investment irregular money flow 4.00 4.0


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Last Reviewed: March 16, 1999