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Unsourced material may be challenged and removed. The term internal refers to the fact that its calculation does not involve external factors, such as inflation or the cost of capital. In the context of savings and loans, the IRR is also called the effective interest rate.
Speaking intuitively, IRR is designed to account for the time preference of money and investments. A given return on investment received at a given time is worth more than the same return received at a later time, so the latter would yield a lower IRR than the former, if all other factors are equal. A fixed income investment in which money is deposited once, interest on this deposit is paid to the investor at a specified interest rate every time period, and the original deposit neither increases nor decreases, would have an IRR equal to the specified interest rate.