Groundlearn / Glossary / Internal rate of return
Internal rate of return (IRR)
Also called IRR. A CFA term, defined in plain English with the distinction examiners test.
What it means
The discount rate at which a project’s NPV is zero.
The exam angle
A cash flow stream that changes sign more than once can have more than one IRR, or none. That is the whole reason NPV is the preferred rule.
Where it appears in the syllabus
- Quantitative MethodsCFA Level I · exam weight 11–14% · Returns and benchmarks, time value, distributions, portfolio maths, regression.
- Corporate FinanceCFA Level I · exam weight 6–9% · Governance, working capital, capital allocation, capital structure.
On the calculator
Time value of money questions on the BA II Plus come down to five keys and a few traps (payments per year, BGN mode, the sign of cash flows). Watch the keystrokes video.
Related terms
- Net present valueThe present value of a project’s cash inflows less the present value of its outflows.
- AlphaReturn in excess of what the asset’s risk exposures would predict.
- AnnuityA series of equal cash flows at equal intervals.
- Arithmetic meanThe sum of the observations divided by their number.
- Bayes’ formulaA rule for revising the probability of an event in the light of new information, using how likely that information is…
- BootstrapResampling the observed data with replacement to estimate the sampling distribution of a statistic, without assuming a…
Educational content only. This is not financial, investment, legal or regulatory advice. Check the official curriculum for your own exam before relying on any definition here.
Practise it in Cornerstone
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