1. What is Monthly IRR?

The Monthly Internal Rate of Return (IRR) is the monthly equivalent of an annual IRR. It converts an annualized return figure into its monthly compounding equivalent, useful for analyzing monthly cash flows.

2. How Does the Calculator Work?

The calculator uses the following formula:

Where:

• Annual IRR — The annualized internal rate of return (in decimal form)
• 1/12 — Represents the 12th root for monthly conversion

Explanation: The formula converts an annual rate to its monthly equivalent by taking the 12th root of the total annual return.

3. Importance of Monthly IRR

Details: Monthly IRR is particularly important for investments with monthly cash flows, allowing for more precise analysis and comparison of investment performance on a monthly basis.

4. Using the Calculator

Tips: Enter the annual IRR as a percentage (e.g., enter "8" for 8%). The calculator will provide both the percentage and decimal form of the monthly IRR.

5. Frequently Asked Questions (FAQ)

Q1: Why convert annual IRR to monthly?
A: Monthly conversion allows analysis of investments with monthly cash flows and provides a more granular view of return patterns.

Q2: How does compounding affect the calculation?
A: The formula accounts for monthly compounding, meaning returns are reinvested each month.

Q3: Can I use this for negative returns?
A: Yes, the formula works for both positive and negative annual IRRs.

Q4: What's the difference between IRR and annualized IRR?
A: IRR can be calculated for any period, while annualized IRR converts any period's return to an annual equivalent.

Q5: How precise is this calculation?
A: The calculation is mathematically precise, though real-world returns may vary due to timing of cash flows.