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Economics

Internal Rate of Return (IRR)

Quick fact

The IRR is sometimes called the 'economic rate of return' because it reflects the true yield of an investment, factoring in the timing of cash flows.

Why this is interesting

Imagine two investment opportunities: one pays you $100 every year for 5 years, the other pays a single $600 after 5 years. Which one is better? The Internal Rate of Return (IRR) is a single number that lets you compare them fairly by accounting for the time value of money.