How to Calculate the Internal Rate of Return Using Excel

Video Transcript

"Hi my name is Dave Andrews and today I'm going to show you the internal rate of return in investment using Excel. Let's open up Excel and click on our start button and all programs and find Microsoft Office and just launch Excel. Now for our initial investment let's say we are going to make a payment of $1,000 so Excel signifies a payment by doing -1,000. As you can see there is our payment of -$1,000 so we are going to now type in the amount that we will get as a return value of our investment over three periods. Let's say the first period we make back $300 on that investment and the second period we make make $200 on our investment and the third period we make back $350. So what is going to be our rate of return on this investment? Basically you use a function built into Excel, you type the equal sign and then IRR which means Internal Rate of Return and open up a parentheses and now let's use our mouse and just click and drag over all of these values because that is going to be the input for our data. Close out your parentheses and your function and hit enter. As you can see we have about a 7% rate of return on our investment based upon our initial investment and the amounts we got back over the following periods. My name is Dave Andrews and I have just showed you how to calculate the internal rate of return using Excel."