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?
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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