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When the basic IRR is calculated, the number of days in the period is determined by the report begin and end dates. This creates consistent day weights for all the calculations on the report.
For example, if security A is held for the entire 30-day period and has a return of 10 percent, the report IRR is 10 percent. However, if security B is held for three days and has a 10 percent return, the report IRR is much higher than 10 percent due to the day weighting of the cash flows.
While this basic IRR is widely accepted, analysts also need the ability to look at the return of securities based on the amount of time that each was held. So, if security A has a 10 percent return over 30 days and security B is held for three days and has a 10 percent return, the report IRR is 10 percent in both cases.
The option Calculate Partial Periods defines the number of days for each security based on the availability of BMV, EMV, and cash flows for each security. If one security has BMV and EMV, then they are used as begin and end dates for the weighting. However, if the BMV or EMV are missing, the weighting uses the first or last cash flow dates for the weighting.
The basic logic is:
If BMV = Null, Then BeginDate = FirstCashflowDate - 1, Else BeginDate = ReportBeginDate
If EMV = Null, Then EndDate = LastCashflowDate, Else EndDate = ReportEndDate
This option is controlled in the Partial Period Option drop-down list menu in the IRR field dialog box. See the following figure.
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If the beginning position is not found, the Beginning of Day assumption does not adjust the day weight by adding one day and the Middle of Day assumption does not add half a day. Without this additional logic, the first cash flow has a weight greater than 1. |
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