Money-weighted return: IRR with calculator

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Galli

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Using my HP12c calculator to solve a MWR questions but im not sure what the IRR number that is outputed actually represents.
Simple Question:
1st of the Month Account Value = 1,000,000
5th Day of the Month: Addition to Account: $30,000
16th Day of Month: Addition to Account: $20,000
30th Day of Month (end of month): Value of Account = 1,080,000
———————————————-
Calculator gives me a result of .095362, which i’ve assumed equals 9.53% monthly return but i’ve seen other people turn this .095362 into a monthly return by using (1+.00095362)^30 = 2.90%

  • Why are they adding two decimal places to the .095362 that the IRR calculates?
  • Is the .095362 a daily return or a monthly return?
This is a level-I question but I can’t find an concrete answer that i’m satisfied with.
 
The result is ‘average’ daily return throughout the 30-day month. And usually the calculator implies a % to be added to IRR. So 1 for IRR = 1%
With the average daily return, we need to link it to 30 days to have monthly return. Hope it helps.
If they replace day with month, eg May, Oct. It’ll be average monthly return for the year. It also depends on the length of the period in the measurement (here, it’s 30 day).
 
ah okay so .095 is actually .095% daily return. That makes this a lot more clear now….
.095% / 100 = .00095 daily = 1.00095^ 30 = 2.89% monthly
Cool, thanks for the help.
 
@Galli - Could you please share how you solved this problem using the calculator? I have a BA II Plus but I imagine the process is similar although the buttons may be different.
I currently have:
CF0 = -1,000,000
C01 = -30,000
F01 = 1
CO2 = -20,000
F02 = 1
C03 = 1,080,000
F03 = 1
Compute IRR = 0.9648388
I’m definitely missing something and I don’t recall the CFAI text having a calculator example for something like this.
 
  • 1st of the Month Account Value = 1,000,000
  • 5th Day of the Month: Addition to Account: $30,000
  • 16th Day of Month: Addition to Account: $20,000
  • 30th Day of Month (end of month): Value of Account = 1,080,000
CF0=-1000
C01=0. F01=4
C02=-30, F02=1
C03=0,F03=10
C04=-20,F04=1
C05=0,F05=13
C06=+1080,F06=1
point is - you need to consider these as DAILY cash flows - so intermediate days with nothing = 0 Cashflow.
 
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