IRR 2x Money in 5 Years is equal to what percentage?

IRR 2x Money in 5 Years is equal to what percentage?

• A. 10%
• B. 15%
• C. 20%
• D. 25%

Answer: (B)

To double money in five years with a constant annual return, use the compound growth idea. If the annual rate is r, the growth over five years is (1 + r)^5. To achieve a doubling, set (1 + r)^5 = 2. Solving gives r = 2^(1/5) − 1. The fifth root of 2 is about 1.1487, so r ≈ 0.1487, or around 14.87% per year. This rounds to roughly 15% per year. You can check: (1.15)^5 ≈ 2.01, which is very close to doubling, so the annual IRR that doubles the investment in five years is about 15%.

To double money in five years with a constant annual return, use the compound growth idea. If the annual rate is r, the growth over five years is (1 + r)^5. To achieve a doubling, set (1 + r)^5 = 2. Solving gives r = 2^(1/5) − 1. The fifth root of 2 is about 1.1487, so r ≈ 0.1487, or around 14.87% per year. This rounds to roughly 15% per year. You can check: (1.15)^5 ≈ 2.01, which is very close to doubling, so the annual IRR that doubles the investment in five years is about 15%.