What Is the Difference Between the Internal Rate of Return

question 20

Multiple Choice

What is the difference between the internal rate of return (IRR) and the external rate of return (ERR) ?

• A)The IRR is earned by a project whereas the ERR is earned outside of it.
• B)The ERR equals the difference between the IRR and the MARR.
• C)The IRR usually equals the MARR whereas the ERR is always higher than the MARR.
• D)The ERR is earned when a project's return is used for the purpose of further reinvestment while the IRR is typically used for calculating the net return of a project.
• E)For a given explicit rate of return, a project can have more than one value for its ERR but can have only one value for its IRR.

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Definitions:

Stock

A type of investment that represents ownership in a corporation, giving the holder a claim on part of the corporation's assets and profits.

Standard Deviation

A statistical measure that quantifies the variation or dispersion of a set of data points.

Population

A group of individuals, items, or data from which a statistical sample can be drawn for analysis.

Standard Deviation

A measure of the amount of variation or dispersion of a set of values, used in statistics to quantify the degree to which individual data points differ from the mean value.