The so-called annualization means converting less than one year into one year. For example, deposit 1 000 yuan at the beginning of the year, with a semi-annual interest rate of 2%, and get 1 020 yuan after half a year. If you annualize 2% of the semi-annual interest rate, the annualized interest rate is 4%. Similarly, if the quarterly return rate is 3%, the annualized return rate is 12%.
The calculation method of annualized rate of return is to convert the current rate of return (daily rate of return, weekly rate of return, monthly rate of return) into annual rate of return, which is a theoretical rate of return, not an actual rate of return.
Annualized rate of return The annual rate of return converted from the net income per 10,000 fund shares of the Monetary Fund in the past seven days. There are two ways to carry forward money market funds: 1. "Daily dividends are carried forward on a monthly basis", which is equivalent to daily simple interest and monthly compound interest; 2. "Daily dividends are carried forward daily", which is equivalent to daily compound interest.
The annualized rate of return refers to the rate of return obtained by investing for one year.
Annualized rate of return = [(return on investment/principal)/investment days] *365 × 100%
Annualized income = principal × annualized rate of return
Actual income = principal × annualized rate of return × investment days /365
IRR is the abbreviation of internal rate of return, which is the discount rate that the total present value of capital inflow is equal to the total present value of capital flow and the net present value is equal to zero. If the computer is not used, the internal rate of return will be tried with several discount rates until the discount rate with net present value equal to or close to zero is found.
Internal rate of return (IRR) is the expected rate of return on investment and the discount rate that makes the net present value of investment projects equal to zero. It is the expected rate of return of an investment, and the bigger the index, the better. Generally speaking, the project is feasible when the internal rate of return is greater than or equal to the benchmark rate of return.
The sum of discounted cash flows of investment projects in each year is the net present value of the project, and the discount rate when the net present value is zero is the internal rate of return of the project. In the project economic evaluation, according to the different levels of analysis, the internal rate of return can be divided into financial internal rate of return (FIRR) and economic internal rate of return (EIRR).
IRR is also called internal rate of return. The popular explanation is that the higher the internal rate of return, the less the cost of input, and the more income you can get at this time. In addition, IRR can also be understood as the discount rate that determines whether a project is accepted or not, but it is not suitable for reality. Both of these understandings are popular explanations.
Internal rate of return is essentially a discount rate. For example, if you borrow money to invest in a project, the interest rate is 8% and IRR is 8%, then the project just breaks even.
The advantage of internal rate of return method is that it can link the income of the project with its total investment, point out the rate of return of the project, and compare it with the industry benchmark investment rate of return, so as to determine whether the project is worth building. When the loan is used for construction, when the loan conditions (mainly interest rate) are not clear, the internal rate of return method can avoid the loan conditions and get the internal rate of return as the acceptable upper limit of the loan interest rate first. However, IRR is a ratio, not an absolute value. The scheme with low internal rate of return may be worth building because of its large scale and larger net present value. Therefore, both internal rate of return and net present value must be considered when choosing the ratio of each scheme.
Internal rate of return is one of the main methods of profitability analysis. The interval of IRR relative to the benchmark rate of return i0 in the economic sense should be:-1. When IRR≥i0, it indicates that the project yield reaches or exceeds the set discount rate level, and the project is feasible and can be considered for acceptance. The internal rate of return can be obtained by equation, but this equation is a high-order equation, and the approximate solution of IRR is usually obtained by "trial interpolation method"
Internal rate of return (IRR) is generally regarded as the profitability of project investment, which reflects the efficiency of investment and has a clear concept. Compared with net present value and net annual value, real economic workers in all walks of life prefer to adopt internal rate of return. The outstanding advantage of IRI is that it is not necessary to give the benchmark discount rate in advance when calculating, which avoids this difficult and controversial problem. The internal rate of return is not given in advance, but determined internally, that is, calculated by the cash flow of the project. When the benchmark discount rate is not easy to determine its exact value, but only its approximate range is known, it is easier to judge the choice of projects by using the internal rate of return index, and IRR has obvious advantages.
However, IRR also has many defects and problems, such as multiple solutions and no solutions, which conflict with NPV indicators and bring us a lot of inconvenience and confusion.