MOIC to IRR conversion: Doubling your money in 2 years corresponds to which approximate IRR?

• A. 40%
• B. 50%
• C. 30%
• D. 20%

Answer: (A)

The main idea is converting a total return over two years into an annualized IRR by using compounding. If you double your investment over two years, the IRR is the rate that, when applied each year for two years, grows the initial amount by a factor of two. Mathematically, (1 + IRR) squared equals 2, so IRR is the square root of 2 minus 1. That value is a bit above forty percent per year, so the best choice among the options is the one that implies a return around that level.

If you think about the other options in relation to doubling in two years, a higher rate would overshoot the target (you’d end up with more than doubling), while lower rates would undershoot (less than doubling). The option closest to the true annualized return is the correct one.