This article discusses the main drawback of the Internal Rate of return (IRR): the implicit assumptions regarding the finance and reinvestment rates. After an introduction to the concept of IRR, the concept of Modified Internal Rate of Return (MIRR) is introduced. The MIRR addresses the main drawback of the IRR method by incorporating explicit assumptions about the finance and reinvestment rates.

Stefan J. Illmer, Ph.D., Illmer Investment Performance Consulting AG