What is the approximate IRR if a 2.2x MOIC is achieved over five years?

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Multiple Choice

What is the approximate IRR if a 2.2x MOIC is achieved over five years?

Explanation:
The main idea here is converting a MOIC over a set horizon into an annualized IRR. MOIC of 2.2x over five years means you end up 2.2 times your investment after five years, assuming a single exit at the end. IRR is the annual rate r that satisfies (1 + r)^5 = 2.2. Solving gives r = 2.2^(1/5) − 1, which is about 1.17 − 1 = 0.17, or roughly 17%. Quick checks show that 15% would yield about 2.01x and 20% about 2.49x, so 17% is the closest match to 2.2x over five years. Therefore, the approximate IRR is 17%.

The main idea here is converting a MOIC over a set horizon into an annualized IRR. MOIC of 2.2x over five years means you end up 2.2 times your investment after five years, assuming a single exit at the end. IRR is the annual rate r that satisfies (1 + r)^5 = 2.2. Solving gives r = 2.2^(1/5) − 1, which is about 1.17 − 1 = 0.17, or roughly 17%. Quick checks show that 15% would yield about 2.01x and 20% about 2.49x, so 17% is the closest match to 2.2x over five years. Therefore, the approximate IRR is 17%.

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