reinvestment rate

Reinvestment rate

The rate at which an investor assumes interest payments made on a debt security can be reinvested over the life of that security.

Reinvestment Rate

The coupons that a bondholder uses to buy more of the same bond as a percentage of total coupons received. The reinvestment rate tends to increase when interest rates rise because the bondholder will earn more interest with less risk. See also: Reinvestment Effect, Plowback Rate.

reinvestment rate

The annual yield at which cash flows from an investment can be reinvested. The reinvestment rate is of particular interest to people holding short-term investments, such as certificates of deposit or Treasury bills, or long-term investments that produce large annual cash flows, such as high-coupon bonds.

reinvestment rate

When analyzing the value of an income-producing property,it is the rate an investor is assumed to be able to earn on intermediate cash flows. The number is necessary for inclusion in the formula for the financial management rate of return.

Example: Ryan owns two rental houses. After payment of all expenses and debt service, Ryan has cash flows of $300 per month, which is a 15 percent return on his money. The internal rate- of-return analysis for these properties assumes that Ryan will take his entire $300 per month and reinvest that money in something else at the same 15 percent rate he is earning on the apartments. The formula assumes a reinvestment rate of 15 percent, which is highly unlikely. The financial management rate-of-return formula still assumes Ryan will reinvest the entire $300 per month, but allows the person doing the analysis to pick a reinvestment rate. If Ryan puts the $300 per month in a savings account earning 2.5 percent, then his reinvestment rate is 2.5 percent.

References in periodicals archive ?
Maybank maintained its position as among the regions best capitalised banks as at end September 2018, with its CET1 ratio strengthening further by 9bps to 13.59% from 13.50% a year ago, and total capital ratio of 17.62% (after proposed dividend and assuming an 85% dividend reinvestment rate) both significantly higher than regulatory requirements of 4.5% and 8.0% respectively.
Nevertheless, both methods may be incomplete in that they misunderstand the possibility of the reinvestment rate their calculations are based upon.
As a result, the investment outlays, the reinvestment rate and the ratio of capital expenditures to depreciation reach a stationary point/static equilibrium.
The 50 percent reinvestment rate is derived by dividing the target growth rate of 9.5 percent with the company's return on capital of 18.9 percent.
The reinvestment rate (s) is the percent of income that gets saved and reinvested--that is, what's left after taxes (t) and consumption (c).
HBL IMMF is exposed to reinvestment rate risk, which has heightened lately on account of the trend in policy rate.
The bank's improved capital position reflects its high reinvestment rate of 88.2 per cent for the bank's fifth dividend reinvestment plan (DRP).
We lead the nation in patents per capita and 5 percent of our local economy is plowed right back into R&D, the highest reinvestment rate anywhere in the world.
Now, Berkley says in a conference call with investors, his top-two concerns are the reinvestment rate on the company's portfolio and the risk of inflation.
However, NPV is unable to reflect the reality of construction market when the limitation on the use of free cashflow leads to violation of NPV's assumption that firm's opportunity cost is the same as reinvestment rate (Beaves 1988).
Adjusted rate of return, often called "effective rate of return," is calculated by assuming that all of the investment's benefits (not only cash inflows but also tax savings) are invested at the "alternative reinvestment rate." The alternative reinvestment rate is the after-tax rate at which money can be safely invested.
In particular, the reinvestment rate used to estimate free cash flows to the firm should be consistent with the stable growth rate.