IRR is the internal rate of return, also known as the internal rate of return, which refers to the rate of return that can actually be achieved by project investment. In essence, it is the discount rate that causes the project's net present value to equal zero. It is the discount rate when the total present value of capital inflows is equal to the total present value of capital outflows and the net present value is equal to zero. If you do not use a computer, the internal rate of return needs to be calculated using several discount rates until you find the discount rate at which the net present value is equal to zero or close to zero.

IRR is often used to calculate the actual interest rate of a loan. For example, if you borrow 12,000 yuan and repay it in 12 installments, the monthly repayment is 1,100 yuan (1,000 yuan principal plus 100 yuan interest), and the total interest is 1,200 yuan. , then the nominal interest rate is 1200/12000=10%, but this is not the actual cost of our borrowing, because the borrowing principal is not used for the entire borrowing cycle. In this case, IRR can be used to calculate the actual loan interest, and you can open an Excel. Enter "12000" in column A1, enter "-1100" in columns A2-A13, and enter "=IRR (A1:A13)*12" in column B1. This way you can calculate the actual borrowing interest rate to be 17.97%, which is much higher than 10 % nominal interest rate.

Similarly, we can also use IRR to calculate the real interest rate of our credit products. For example, on the Youqianhua page of Duxiaoman Financial APP, enter the loan amount of 10,000 yuan and choose the equal principal and interest repayment method for repayment. The page shows that you need to repay 866.18 yuan per month. Continue to apply the above formula. Enter 10,000 for A1 and enter A2. -866.18, enter -866.18 in A3, and fill in A13 by analogy. The internal rate of return for 12 periods is about 7.2%, because Du Xiaoman’s interest does not include the principal that has been returned before. The central bank clearly stipulates that the interest must be The internal rate of return method is used to calculate the annual interest rate of the loan. Compared with the above installment purchase of mobile phones, it is more appropriate to purchase a mobile phone with a loan from a platform like Duxiaoman Finance.