MOIC to IRR conversion: Doubling your money in 3 years corresponds to which approximate IRR?

Study for the Private Equity Interview Test. Prepare with a range of questions and expert explanations to ensure success in landing your dream role. Optimize your readiness for the interview process!

Multiple Choice

MOIC to IRR conversion: Doubling your money in 3 years corresponds to which approximate IRR?

Explanation:
IRR is the annualized return that turns your initial investment into the final value over the investment period. If you double your money in three years, you’re solving for IRR in the equation (1 + IRR)^3 = 2. The cube root of 2 is about 1.26, so IRR ≈ 1.26 − 1 = 0.26, i.e., roughly 26%. Among the given options, the closest is around 25%. Checking quick estimates: 25% annual returns for three years give about 1.25^3 ≈ 1.95, just under 2; 20% gives about 1.2^3 = 1.728; 15% gives about 1.15^3 ≈ 1.52; 10% gives about 1.1^3 ≈ 1.331. So doubling in three years corresponds to about 26% IRR, with 25% being the closest choice.

IRR is the annualized return that turns your initial investment into the final value over the investment period. If you double your money in three years, you’re solving for IRR in the equation (1 + IRR)^3 = 2. The cube root of 2 is about 1.26, so IRR ≈ 1.26 − 1 = 0.26, i.e., roughly 26%.

Among the given options, the closest is around 25%. Checking quick estimates: 25% annual returns for three years give about 1.25^3 ≈ 1.95, just under 2; 20% gives about 1.2^3 = 1.728; 15% gives about 1.15^3 ≈ 1.52; 10% gives about 1.1^3 ≈ 1.331. So doubling in three years corresponds to about 26% IRR, with 25% being the closest choice.

More Multiple Choice Questions
Subscribe

Get the latest from Passetra

You can unsubscribe at any time. Read our privacy policy