How do I calculate IRR(Internal Rate of Return) of unequal cash flows.

Question

I have got 4 cash flows:6500;3000;3000;1000. How do I calculate interest rate at which all of them in present are equal to 10 000. 6500/i+3000/i^2+3000/i^3+1000/i^4=1000. Excel computes it by interest rate guess but how do I do it myself?

Answer 1

You can't solve this algebraically, just numerically. You can use any root finding algorithm, bisection, Newton, secant, etc.