IRR Sample Question

Question

Michael Jackson's infamous sequined white glove sold at auction for a $350,000 on November 22, 2009 far exceeding the pre-auction estimates of $50,000. The glove has been termed "the Holy Grail of Michael Jackson," and was originally worn during the 1983 Motown 25 television special. The special was the first time Michael staged his signature moonwalk dance [1]. If the glove was originally commissioned by Michael for $100 in 1983, find the internal rate of return for the glove.

Answer

First let's get the correct equation

IRR = (FW/PW)^(1/N) - 1

Second let's pull out the important information from the question

FW = $350,000
PW = $100
N = 2009 - 1983 = 26 years

Then solve

IRR = (350,000/100)^(1/26) - 1

IRR = 36.9%

Bibliography
1. Michaud, Chris. "Michael Jackson's Glove Sells for $350,000 at Auction." Newsdaily.com. 28 Nov. 2009. Web. 28 Nov. 2009.
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