hi in an interview I was asked what IRR would be after doubling your money after 1 and what it would be if doubling ur money after 2 years, i said 100% after 1 year and around 40% after 2 years. the interviewer followed up with if its 100% after one year, why would it not be 50% after two years?
My reply was because of the time value of money the interviewer never said anything after.
I wanted to ask whether my answer was correct or if not, what the correct answer would be?
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Assuming no dividend recap or something of the sort, IRR is just CAGR. (2/1)^(1/1)-1=100%; (2/1)^(1/2)-1 is ~41%.
Another way to think about it is that it’s not 50% because 100 growing at a 50% CAGR for two periods is (100 x 1.5 x 1.5) which is greater than 200.
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