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XIRR (Extended Internal Rate of Return) is a financial metric used to calculate the annualized rate of return for a series of cash flows that occur at irregular intervals. To calculate XIRR, you can use the following steps:
List all the cash flows associated with the investment, including both the amounts invested and the returns received. Make sure to include the dates of each cash flow.
Use a financial calculator or spreadsheet software that supports XIRR calculations. Most spreadsheet programs like Microsoft Excel have built-in functions for calculating XIRR.
Input the cash flows and corresponding dates into the XIRR function. The syntax for the XIRR function typically requires two inputs: the range of cash flows and the range of dates.
The XIRR function will calculate the annualized rate of return for the investment based on the cash flows and dates provided.
Interpret the XIRR result as the annualized rate of return for the investment. This rate represents the rate at which the investment would need to grow to generate the observed cash flows.
It is important to note that XIRR is a more accurate measure of return for investments with irregular cash flows compared to traditional IRR calculations.
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