Properties of the IRR Equation with Regard to Ambiguity of Calculating the Rate of Return and a Maxi

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The IRR Equation is widely used in financial mathematics for different purposes, such as computing the rate of return on investments, calculation of implied volatility, yield to maturity, calculation of interest rates for mortgages and annuities, etc.  However, in general, the IRR equation may have several solutions, which restricts its application.  Thus, the knowledge of how to find these solutions and choose the right one is important.  Our understanding of properites of the IRR equation is not complete.

Author: Yuri Shestopaloff Ph.D., SegmentSoft and Wolfgang Marty, Ph.D., Credit Suisse

The IRR Equation is widely used in financial mathematics for different purposes, such as computing the rate of return on investments, calculation of implied volatility, yield to maturity, calculation of interest rates for mortgages and annuities, etc.  However, in general, the IRR equation may have several solutions, which restricts its application.  Thus, the knowledge of how to find these solutions and choose the right one is important.  Our understanding of properites of the IRR equation is not complete.

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