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Internal rate of return is the discount rate at which the net present value of all cash flows (both positive and negative) from a project or investment equal zero.
IRR is calculated using the net present value (NPV) formula by solving for R if the NPV equals zero: NPV= ∑ {Period Cash Flow / (1+R)^T} - Initial Investment, where R represents the interest rate and T represents the number of time periods. The internal rate of return is a useful metric used to compare potential investments that may having differing time horizons or cash flow patterns. Generally speaking, the greater the IRR, the greater the relative expected return after accounting for the time value of money. However, IRR does not account for risk profile of the expected returns, and thus investors often use IRR as one of several metrics in evaluating potential investments.
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Hypothetical example(s) are for illustrative purposes only and are not intended to represent the past or future performance of any specific investment.
Investing in alternative assets involves higher risks than traditional investments and is suitable only for sophisticated investors. Alternative investments are often sold by prospectus that discloses all risks, fees, and expenses. They are not tax efficient and an investor should consult with his/her tax advisor prior to investing. Alternative investments have higher fees than traditional investments and they may also be highly leveraged and engage in speculative investment techniques, which can magnify the potential for investment loss or gain and should not be deemed a complete investment program. The value of the investment may fall as well as rise and investors may get back less than they invested.
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