Pref Equity IRR question
I created an annual model for a pref equity investment utilizing a 5% current pay and 10% PIK pay. When stripping out all fees, this annual model gets me an even 15.0% IRR.
However, when using the exact same cash flows and formulas to build out a monthly model, I get a 15.5% IRR. I believe my issue lies in how my interest is run, but can't seem to get it spit out an even 15.0% IRR on the monthly. I'm calculating interest monthly by (1+Annual Rate)^(1/12)-1.
Before anyone asks, a straight Annual Rate/12 got me an even higher IRR (close to 16%), and same with the ((Current Month - Prior Month)/365)*Annual Rate.
Does anyone know why the monthly model and annual model aren't calculating the exact same IRR? Greatly appreciate it!
IRR is a time weighted metric. In the monthly scenario, you receive the cash flows sooner vs the annual scenario so it's greater.
This why XIRR always solves to a slightly higher IRR than IRR does.
Sequi placeat odit esse quod qui. Voluptatem quis modi ut quaerat. Accusantium alias error sunt voluptate animi. Nostrum omnis architecto enim. Nisi omnis adipisci facere. Itaque quod delectus unde quo. Omnis quidem et et exercitationem.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...
Maxime aut sed explicabo magni qui. Beatae aut unde veritatis voluptatibus ut. Qui pariatur consequuntur omnis doloremque omnis totam neque et. Qui numquam saepe assumenda vel labore provident. Ut id porro consequatur autem magnam. Voluptatem facere necessitatibus aut facilis perspiciatis. Esse qui enim libero omnis minima sed voluptas ea.
Temporibus nesciunt in est cumque sit. Est reiciendis ut impedit fugiat quidem ullam. Maiores fugiat officiis vero aperiam natus officia occaecati.
Et autem praesentium architecto sed ea molestiae. Magnam non sed est ea aliquam. Est ut aut est et asperiores necessitatibus.
Saepe quod quasi omnis nesciunt facere. Dolores deserunt dolorum est enim. Autem velit laudantium temporibus consequatur reprehenderit repudiandae eos. Sed dolores quia ea perferendis voluptates est officiis. Voluptatem distinctio modi labore sunt libero.