Investment Analysis Using the Probability Distribution of the Internal Rate of Return

William Fairley and Henry D. Jacoby
Additional contact information
William Fairley: Harvard University
Henry D. Jacoby: Massachusetts Institute of Technology

Management Science, 1975, vol. 21, issue 12, 1428-1437

Abstract: The probability distribution of the internal rate of return of an investment is derived under conditions where uncertainty in costs and returns can be described by a multi-variate normal distribution. The paper sketches the derivation of the exact probability distribution for the rate of return and gives the normal approximation to this distribution when variances of period costs and returns are small. A number of typical normal probability models are discussed in order to demonstrate the flexibility of the approach. An extended application of the analysis is presented using a World Bank appraisal of a hydroelectric power investment in Argentina.

Date: 1975
References: Add references at CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://dx.doi.org/10.1287/mnsc.21.12.1428 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:21:y:1975:i:12:p:1428-1437

Access Statistics for this article

More articles in Management Science from INFORMS Contact information at EDIRC.
Bibliographic data for series maintained by Chris Asher ().