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 ?
With a lower outlook for beta returns across most asset classes, alpha becomes an even more critical component for achieving required returns.
The IRS issued guidance, Notice 2017-47, providing penalty relief for certain partnerships that did not file the required returns by the new due date for their tax year that began in 2016, but filed their returns or their extension requests for that year by the15th day of the fourth month after the end of their taxable year (April 18 for calendar-year filers).
To use the tool, an individual taxpayer must owe $50,000 or less in combined tax, interest, and penalties, and all required returns must be filed.
Nevertheless, the required returns will, like any other investment, be a function of the perceived investment risk; the greater the risk, the higher the targeted IRR.
Balancing out the required returns needed for achieving goals with the investment risks that a person is willing to take.
The key reasons for this competitive advantage for the national economy include the energy subsidy system, which is set to be phased out in the next few years; major state (or state-affiliated) ownership of the sector, which significantly caps the economically rational level of required returns on investment; and low domestic prices for gas - the sector's main fuel source.
Shanks said that the Industrial Cleaning Wallonia business is not core to its strategy and does not have the capability to generate the required returns under Shanks' ownership.
For example, if investor-required returns decreased from 40% in 2010 (the last number in the first column) to a 10% required return in 2014 (the first number in the top row), the increase in portfolio value would be approximately $439,323,661.
In addition, a reduction in the property risk premium, to the lowest level since before the financial crises, has reduced investors' required returns.
However, the 2013 music events failed to generate the required returns we had hoped for and we have therefore revised our strategy to focus on acts that will offer greater prospects for profitability.
As a result the spread between required returns on equity and debt widens (Gao & Lou, 2011).
Most US markets were cold, offering expected returns below risk adjusted required returns," said Nigel Almond, associate director of forecasting & strategy at DTZ and author of the report.

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