[R] Code to calculate internal rate of return

[Paul Bivand]

You could look at how the same problem is dealt with in package "financial".

Paul Bivand

2008/8/1 Moshe Olshansky <m_olshansky at yahoo.com>
>
> You can use uniroot (see ?uniroot).
>
> As an example, suppose you have a $100 bond which pays 3% every half year (6% coupon) and lasts for 4 years. Suppose that it now sells for $95. In such a case your time intervals are 0,0.5,1,...,4 and the payoffs are: -95,3,3,...,3,103.
> To find internal rate of return you can do the following:
>
> > tim <- (0:8)/2
> > tim
> [1] 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0
> > pay <- 3 + 0*tim
> > pay[1] <- -95
> > pay[9] <- 103
> > pay
> [1] -95   3   3   3   3   3   3   3 103
> > f <- function(r) sum(pay*exp(-r*tim))
> > z <- uniroot(f,c(0,1))
> > z
> $root
> [1] 0.07329926
>
> $f.root
> [1] 0.01035543
>
> $iter
> [1] 5
>
> $estim.prec
> [1] 6.103516e-05
>
>
> So the internal rate of return is 0.07329926 (z$root) = 7.33% (continuously compound).
>
>
> --- On Fri, 1/8/08, Thomas E <thomas at elger.se> wrote:
>
> > From: Thomas E <thomas at elger.se>
> > Subject: [R]  Code to calculate internal rate of return
> > To: r-help at r-project.org
> > Received: Friday, 1 August, 2008, 2:05 AM
> > Hi all.
> >
> > I am an R newbie and trying to grasp how the simple
> > optimization routines in
> > R work. Specifically, I would like some guidance on how to
> > set up a code to
> > calculate the internal rate of return on an investment
> > project
> > (http://en.wikipedia.org/wiki/Internal_rate_of_return).
> >
> > My main problem (I think) is that I want a generic code
> > where N (number of
> > periods) can be easily changed and set within the code,
> >
> > Hope this makes sense - any help appreciated !!!
> >
> > Thomas
> > --
> > View this message in context:
> > http://www.nabble.com/Code-to-calculate-internal-rate-of-return-tp18757967p18757967.html
> > Sent from the R help mailing list archive at Nabble.com.
> >
> > ______________________________________________
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> > PLEASE do read the posting guide
> > http://www.R-project.org/posting-guide.html
> > and provide commented, minimal, self-contained,
> > reproducible code.
>
> ______________________________________________
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> and provide commented, minimal, self-contained, reproducible code.