1. What is Monthly IRR?

The Monthly Internal Rate of Return (IRR) is the monthly equivalent of an annual IRR. It represents the monthly discount rate that makes the net present value of all cash flows equal to zero.

2. How Does the Calculator Work?

The calculator uses the approximation formula:

For more precise calculations, you would need to solve for the rate that satisfies:

Where:

• \( CF_t \) — Cash flow at time t
• \( r \) — Monthly IRR (as decimal)
• \( t \) — Month number

3. Importance of Monthly IRR

Details: Monthly IRR is crucial for analyzing short-term investments, comparing monthly performance, and making monthly financial decisions. It's particularly important for loans, leases, and monthly payment instruments.

4. Using the Calculator

Tips: Enter the annual IRR percentage (without % sign). The calculator will provide both the monthly percentage and decimal equivalent.

5. Frequently Asked Questions (FAQ)

Q1: Is the monthly IRR the same as annual IRR divided by 12?
A: This is an approximation. The exact relationship is (1 + monthly IRR)^12 = 1 + annual IRR.

Q2: When should I use monthly vs annual IRR?
A: Use monthly IRR for investments with monthly cash flows or when analyzing monthly performance. Annual IRR is better for long-term comparisons.

Q3: What are typical monthly IRR values?
A: For stable investments, monthly IRR is typically between 0.5% to 2%. Higher values may indicate higher risk.

Q4: Can I calculate monthly IRR from monthly cash flows?
A: Yes, but this requires solving the IRR equation numerically, which is more complex than this simple calculator provides.

Q5: How does compounding affect monthly IRR?
A: Monthly IRR accounts for monthly compounding, which can significantly impact returns over time compared to simple division.