The internal rate of return of an investment is:
A)The same as return on investment
B)Zero when the present value of an investment equals its cost
C)The interest rate that equates the present value of an investment with its cost
D)Equal to the market rate of interest when an investment is made

Question

Quizplus · Accepted Answer

The internal rate of return is the interest rate that equates the present value of an investment with its cost. It is not the same as return on investment (A), which is simply the profit or loss expressed as a percentage of the initial investment. It is not necessarily zero when the present value of an investment equals its cost (B), as there may be cash flows in between that affect the IRR. It is also not necessarily equal to the market rate of interest (D) as it is specific to the investment being evaluated.

The Internal Rate of Return of an Investment Is