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From |
"Jeff" <jbw-appraiser@earthlink.net> |

To |
<statalist@hsphsun2.harvard.edu> |

Subject |
RE: st: Internal Rate of Return Calculation |

Date |
Tue, 14 Jun 2011 09:36:20 -0700 |

I am admittedly not as skilled in using Stata as most on this list serve. However, I find this discussion interesting, in that it seems to imply that by picking an appropriate distribution to find the internal rate or return, the next step would be to apply a monte carlo simulation to further develop the IRR and its related cost of capital. In this risk modeling approach to finance, there are many commercial Excel Add-in which do this (despite the fact that Excel is often criticized as an inadequate program to perform statistical analysis). I would be interested is how this can be performed in Stata 10, i.e., find or develop the appropriate probability distribution and then apply a monte carlo simulation to develop the IRR or cost of capital? Jeffrey B. Wolpin -----Original Message----- From: owner-statalist@hsphsun2.harvard.edu [mailto:owner-statalist@hsphsun2.harvard.edu] On Behalf Of Austin Nichols Sent: Tuesday, June 14, 2011 9:04 AM To: statalist@hsphsun2.harvard.edu Subject: Re: st: Internal Rate of Return Calculation M. S. <shanghaiexpat09@googlemail.com>: With respect to IRR calculations, there are several plausible scenarios. One is that there is assumed to be a common internal rate of return, and many projects with initial price and values in subsequent periods provide data with which to estimate that common parameter. A second more plausible scenario is that the many projects with initial price and values in subsequent periods describe a distribution of project-specific IRRs where a hypothetical lower bound determines which were put into action and the estimation is aimed at that lower bound (e.g. only projects with ex ante IRR>10% are put into effect, but the observed IRRs range from -1 to 300 ex post, with a large bump in the density at 0.10 where the ex ante truncation kicks in). Instead, I assume from the context that in fact there are several projects each of which is supposed to have its own IRR and the initial price and values in subsequent periods provide data that uniquely determine an individual IRR, which is to be calculated; in that case the mm_root() functionality of moremata (on SSC) applies, as it does to finding the zeros of any nonlinear function. clear all input v0 v1 v2 v3 100 105 107 120 500 550 600 700 end g p=v0+v1/(1+_n/10)+v2/(1+_n/10)^2+v3/(1+_n/10)^3 g irr=. mata st_view(v=.,.,"irr v0 v1 v2 v3 p") function y(x,a,b,c,d,e) { return(e-a-b/(1+x)-c/(1+x)^2-d/(1+x)^3) } for (i=1;i<=rows(v);i++) { mm_root(x=.,&y(),0,1,1e-9,1000,v[i,2],v[i,3],v[i,4],v[i,5],v[i,6]) v[i,1]=x } end l, noo On Tue, Jun 14, 2011 at 11:35 AM, Austin Nichols <austinnichols@gmail.com> wrote: > Sounds like > http://www.stata.com/statalist/archive/2010-04/msg01113.html > > On Tue, Jun 14, 2011 at 2:07 AM, M. S. <shanghaiexpat09@googlemail.com> wrote: >> Dear Statalisters: >> >> I am searching for a more convenient way to calculate internal rates >> of return. I should mention, that I am not that experienced with Stata >> at this point. >> >> I have a function like this: >> >> Net Present Value = Value0+ value1/(1+irr)^1+ value2/ (1+irr)^2 . . . >> + value6/(1+irr)^5*(irr-growth) ? price >> >> To find the discount rate irr that makes the function equal to zero I >> am currently using a forvalues loop which increases or decreases the >> discount factor given the current value of Net Present Value. This >> requires me to recalculate the result all the time and to use several >> if-conditions so that irr is changed by 1% at first and later by 0.1%, >> 0.01% and so on . . . >> >> Is there a more convenient way to find the discount factor? When I >> searched, I only found a function called ?finirr? but I couldn´t find >> any documentation for it and my data do not describe as a time series. * * For searches and help try: * http://www.stata.com/help.cgi?search * http://www.stata.com/support/statalist/faq * http://www.ats.ucla.edu/stat/stata/ * * For searches and help try: * http://www.stata.com/help.cgi?search * http://www.stata.com/support/statalist/faq * http://www.ats.ucla.edu/stat/stata/

**Follow-Ups**:**Re: st: Internal Rate of Return Calculation***From:*Dawood Ashraf <dawood_ashraf@yahoo.com>

**References**:**Re: st: Internal Rate of Return Calculation***From:*Austin Nichols <austinnichols@gmail.com>

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