Solving the Puzzle of IRR Equation. Choosing the Right Solution to Measure Investment Success
Publisher: AKVY Press
Published: 2011
Place of publication: Toronto, Canada
Language: eng
Format: Paperback
Number of pages: 107
ISBN-13: 9780981380094
Description: The authors of this book published many articles in peer-reviewed professional journals, including several articles that received awards. This time, they study the problem of multiple roots of IRR equation and introduce a novel “largest root” rule for selecting the correct solution, which effectively resolves the puzzle of IRR equation. Besides this main subject of the book, other important approaches and concepts that relate to the problem and investment performance measurement are considered, such as the concept of investment context. Within this conceptual framework, the authors study and compare different methods for calculating rates of return, such as IRR, Modified Dietz, TWRR, geometric linking, NPV, MIRR, etc., and introduce improvements and generalizations of existing methods and propose several new ones. The book also considers algorithms for linking rates of return. Overall, the book provides an excellent, concise but nonetheless comprehensive, overview of investment performance measurement problems and related issues, and presents well founded solutions. The book was written for a wide audience of financial industry professionals, academics and students studying finance and investment business.
Table of contents: title: Table of contents; title: ABOUT THE AUTHORS	7; title: Yuri K. Shestopaloff	7; title: Alexander Yu. Shestopaloff	8; title: PREFACE	9; title: CHAPTER1. CONCEPTUAL CONTEXTS OF INVESTMENT VALUATIONS AND RATES OF RETURN	13; title: 1.1. The notion of conceptual context of investment	14; title: 1.2. Mixing different investment contexts	19; title: 1.3. Diversity of conceptual contexts of real investment portfolios.	20; title: 1.4. Generalized form of IRR equation (GIRR) and its properties	22; title: 1.5. Generalized Modified Dietz equation and its investment context	28; title: 1.6. Investment context of time weighted rate of return (TWRR)	29; title: CHAPTER 2. NET PRESENT VALUE (NPV) METHOD	31; title: CHAPTER 3. MODIFIED IRR (MIRR)	35; title: 3.1. Deriving MIRR	36; title: 3.2. Improving MIRR equation. Advantageous features of improved equation	41; title: CHAPTER 4. LINKING RATES OF RETURN	43; title: 4.1. Geometric linking.	44; title: 4.2. Linking sequential periods using consistent linking algorithms	47; title: 4.3. Linking non-sequential periods	53; title: 4.4. Linking rates of return for different assets within the same period	55; title: 4.5. Importance of consistent linking algorithms and numerical examples	57; title: CHAPTER 5. APPROXIMATE NATURE OF RATE OF RETURN	61; title: 5.1. Conceptual context as the foundation of investment performance measurement	62; title: 5.2. A special note about TWRR method	63; title: CHAPTER 6. RESOLVING AMBIGUITY OF SOLUTIONS OF IRR EQUATION	65; title: 6.1. Solutions’ ambiguity	66; title: 6.2. IRR equation and its properties	67; title: 6.3. Finding solution of IRR equation	71; title: 6.4. The Rule of Ascending Curve	76; title: 6.5. The Rule of Continuity	78; title: 6.6. GIRR’s continuity of solution	82; title: 6.7. Properties of the IRR equation at the special point  .	86; title: 6.8. Intermediate market value of a portfolio	87; title: 6.9. Practical computation of the IRR equation solution	90; title: 6.10. Note about complex solutions of the IRR equation	92; title: 7. SUMMARY	94; title: APPENDIX A. PROOF OF THE GEOMETRIC LINKING THEOREM	96; title: A1. Geometric Linking Theorem	96; title: APPENDIX B. DATA FOR THE NUMERICAL EXAMPLES SHOWN IN TABLES 2 AND 3	101; title: REFERENCES	104