Required return

Required return

The minimum expected return you would need in order to purchase an asset, that is, to make the 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
References in periodicals archive ?
By deducting the current interest rate of 5.03 percent from the market's required return, we can get the implied risk premium of 7.4 percent, which has risen significantly from 5.8 percent at the beginning of the year.
Resultantly the cartage contractors have become recluctant to induct additional compTotal 3,500 tank lorries are required to be upgraded by October 2019laint fleet as they are getting required return on their investment by following single queue.
"The required return rates were not within logical limits and did not reflect the good economic and financial performance or the improvement of Egypt's credit rating, but were affected by the risks associated with the emerging markets," the ministry noted upon the second cancellation.
Following the previous auction cancellation, Ministry of Finance announced that the required return rates for the bonds exceeded the acceptable limits and that the rates did not reflect the good economic and financial performance or the improvement of Egypt's credit rating, but were affected by risks associated with emerging markets.
Projects reach flip dates when tax equity amounts achieve the required return levels.
Based on future projections and having set a clear strategy for each location, we will review up to 10 stores for closure over five years, should these stores not meet our required return thresholds.
Finally, a variety of interest rates--including yields on Treasury securities, corporate bond yields, and residential mortgage rates--are determined as the expected average value of the federal funds rate over the appropriate holding period plus endogenous term and risk premiums; equity prices equal the present discounted value of corporate earnings based on an estimated required return to equity; and monetary policy is modeled as a simple rule for the federal funds rate subject to the zero lower bound on nominal interest rates.
It is the path of this increased required return to equity that we argue is inadequately addressed by textbooks and provides the focus of this paper.
Generally, the greater the asset's risk, the greater the required return. Similarly, the greater the market's price of risk, the greater the required return.
If investors expect a 6 percent return, then a 0.25 percent tax would lower returns to 5.75 percent and stocks would have to drop in value by 4.17 percent (0.25 percent divided by 6 percent) to restore the 6 percent required return. Bid-ask spreads are now 1 cent for large cap stocks, but a 0.25 percent tax would add 12.5 cents to the spread for a $50 stock.
* If you failed to file a required return, the good faith exception does not apply and there is generally no limit on the time the states can take to track you down.
The approach suggests that a firm can increase its total value through leverage, using a lower cost of capital, and even though the investor may elevate the required rate of return on equity, the increase would not entirely counteract the benefit of using a cheaper source of funding.2 The conventional stance further argues that as more leverage is applied, the investor starts greater disciplining of the firm's required return on equity until in due course it compensates the use of cheaper debt financing.