required rate of return

Required Rate of Return

The rate of return needed to induce investors or companies to invest in something.

Notes:

For example, if you invest in a stock your required return might be 10% per year. Your reasoning is that if you don't receive 10% return, then you'd be better off paying down your outstanding mortgage that you are paying 10% interest on.

See also: Expected Return, Hurdle Rate, Return

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Required Rate of Return (RRR)

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

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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.