Just realizd what IRR is

CFAIII candidate here, and I'm short of embarrassed to say I just connected an important IRR dot.

Turn's out, IRR = CAGR of your investment (if the CFs are invested back at IRR till maturity).

By CAGR, i mean the geometric average annual return, from the initial PV of the outflow to the FV of all inflows.

Try it out:

  1. Compute an IRR of a series of cash flows of a coupon bond (excel recommended)
  2. Find the CAGR = [(FV of all the cash flows invested at IRR)/Initial price]^(1/years to maturity) - 1

They are the same!

Maybe looking at it from this point of view will be more straightforward for some people, as it is now for me.