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.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

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.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved

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.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.
References in periodicals archive ?
To calculate the ratio, the difference is first calculated between the annual rate of return on the portfolio and the minimum required rate of return, and then divided by the annual downside risk (Feibel, 2003).
To fix the minimum required rate of return, a rate required by the investor can be used.
where [S.sub.r] stands for the Sortino ratio; [[bar.R].sub.p] is the average return on investment in the period selected; T is the minimum required rate of return; [RP.sub.t] is the actual rate of return in the individual period observed; n stands for the number of periods observed; and P is the number of periods observed within a year.
In our case, the minimum required rate of return of 0% was fixed, meaning that any positive return would exceed the minimum required rate of return.
Further calculations estimated the minimum holding period required by the vacation purchasers to earn their minimum required rate of return (5%).

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