Point of View Sins of the IRR

Roger Brown

Journal of Real Estate Portfolio Management, 2006, vol. 12, issue 2, 195-200

Abstract: Executive Summary.While a useful tool, the internal rate of return (IRR) has limitations that require under-standing. This Point of View reflects on the usual list of these with brief explanations but then delves more deeply into one overlooked in the literature. Jensen's (1906) Inequality has been known for some time but few realize how it introduces a mathematical inconsistency into the simulation of the IRR. The computation of the bias that results from passing a linear operator through a curved function is explored.

Date: 2006
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DOI: 10.1080/10835547.2006.12089754

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