Required Rate of Return


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Required Rate of Return (RRR)

The minimum expected yield by investors require in order to select a particular investment.

Required Rate of Return

In securities, the minimum acceptable rate of return at a given level of risk. Different investors have different reasons for choosing their required returns. Normally, it is determined by a person's or institution's cost of capital. For example, an investor may also carry a debt with a high interest rate; if an investment does not meet a required rate of return, it would make more sense for the investor to pay down his/her debt. The required return is also related to the amount of risk an investor is willing to accept. One with a portfolio consisting largely of bonds will generally have a lower required return than one whose portfolio contains mainly stocks. See also: Markowitz Portfolio Theory.

required rate of return

1. The minimum rate of return that an investment must provide or must be expected to provide in order to justify its acquisition. For example, an investor who can earn an annual return of 11% on certificates of deposit may set a required rate of return of 15% on a more risky stock investment before considering a shift of funds into stock. An investment's required return is a function of the returns available on other investments and of the risk level inherent in a particular investment.
2. The minimum rate of return required by an investor, a stipulation that limits the types of investments the investor can undertake. For example, a person with a required rate of return of 15% would generally have to invest in relatively risky securities.
References in periodicals archive ?
It can be established based on comparison with other companies in a sector or as a trade-off between liquidity and profitability related to the investors' required rate of return.
This is why they argue that the required rate of return on common stock in Bulgaria should not be higher than the required rate of return in the leading capital markets.
Computing the final independent price of S requires integration of the required rate of return on the production of each separate input.
The required rate of return (cost of capital), which includes the risk premium for investment in stock, is used as an indicator of the level of risk.
Investments in logistics assets with the same risk command the same required rate of return (Pringle and Harris 1987).
The required rate of return, based on her next best investment choice, is 7% in a mutual fund.
The required rate of return may vary as a result of variations in risk-free interest rate and/or risk premium.
Valuations are then simple ratios, where the numerator is the amount of annual cash flow belonging to a particular investor group, and the denominator is the capitalization rate, or required rate of return, for each particular investor group.
The required rate of return, or discount rate, is determined to be 20%.
Defining the required rate of return on equity for a single period as the return on equity, we see that:
The father-of-one, a qualified chartered surveyor, who also used to work for property agent Lambert Smith Hampton, said: "We will move forward on a project-by-project basis and each investment obviously has to have the required rate of return.
Once the projected cash flow is estimated, homes can be valued in the same way as bonds, stocks, and other assets, by discounting the cash flow by the prospective buyer' s required rate of return.

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