DEFINITION of 'Required Rate Of Return  RRR'
The minimum annual percentage earned by an investment that will induce individuals or companies to put money into a particular security or project. The required rate of return (RRR) is used in both equity valuation and in corporate finance.
Investors use the RRR to decide where to put their money. They compare the return of an investment to all other available options, taking the riskfree rate of return, inflation and liquidity into consideration in their calculation. For investors using the dividend discount model to pick stocks, the RRR affects the maximum price they are willing to pay for a stock. The RRR is also used in calculations of net present value in discounted cash flow analysis.
Corporations use the RRR to decide if they should pursue a new project or business expansion; in corporate finance, the RRR is equal to the weighted average cost of capital (WACC).
INVESTOPEDIA EXPLAINS 'Required Rate Of Return  RRR'
You might require a return of 9% per year to consider a stock investment worthwhile, assuming that you can easily sell the stock and inflation is 3% per year. Your reasoning is that if you don't receive a 9% return, which is really a 6% return after inflation, then you'd be better off putting your money in a CD that earns a riskfree 3% per year (really 0% after inflation). You aren't willing to take on the additional risk of investing in stocks, which can be volatile and whose returns are not guaranteed, unless you can earn a 6% premium over the riskfree CD. The RRR will be different for every individual and every company depending on their risk tolerance, investment goals and other unique factors.
VIDEO

Lease Rate
The amount of money paid over a specified time period for the ... 
Hurdle Rate
The minimum rate of return on a project or investment required ... 
Expected Return
The amount one would anticipate receiving on an investment that ... 
Return
The gain or loss of a security in a particular period. The return ... 
InflationAdjusted Return
A measure of return that accounts for the return period's inflation ... 
Capitalized Cost
An expense that is added to the cost basis of a fixed asset on ...

What are the drawbacks of using the Dividend Discount Model (DDM) to value a stock?
Drawbacks of using the dividend discount model (DDM) include the difficulty of accurate projections, the fact that it does ... Read Full Answer >> 
What does the Dividend Discount Model (DDM) show an investor about a company?
The dividend discount model, or DDM, is not designed to be used in forecasting any possible capital gains from increases ... Read Full Answer >> 
How do I find the information needed for input into the Dividend Discount Model (DDM)?
Analysts and investors should utilize a company’s financial statements, stock information websites and any number of analysis ... Read Full Answer >> 
How do you calculate costs of capital when budgeting new projects?
A new project only makes economic sense if its discounted net present value (NPV) exceeds the expected costs of financing. ... Read Full Answer >> 
What is the difference between the cost of capital and required return?
The required rate of return, often referred to as required return or RRR, and cost of capital can vary in scope, perspective ... Read Full Answer >> 
How do treasury bill prices affect other investments?
The prices for Treasury bills (Tbills) can have a significant impact on the risk premium charged by investors across the ... Read Full Answer >> 
How does the required rate of return affect the price of a stock, in terms of the ...
First, a quick review: the required rate of return is defined as the return, expressed as a percentage, that an investor ... Read Full Answer >>

Retirement
Projected Returns: Honing The Craft
Find out how to forecast longterm returns on the three major asset classes. 
Forex Education
How To Calculate Required Rate Of Return
The required rate of return is used by investors and corporations to evaluate investments. Find out how to calculate it. 
Options & Futures
Calculating The Equity Risk Premium
See the model in action with real data and evaluate whether its assumptions are valid. 
Fundamental Analysis
The EquityRisk Premium: More Risk For Higher Returns
Learn how the expected extra return on stocks is measured and why academic studies usually estimate a low premium. 
Mutual Funds & ETFs
Top ETFs for Investing in Coffee
Learn about the market for coffee, one of the largest agricultural markets, and two ETFs that investors can use to obtain exposure to the coffee market. 
Economics
The True Unemployment Rate: U6 Vs. U3
Learn how to distinguish between the U3 and U6 unemployment rates, and explore which rate provides a truer picture of unemployment. 
Stock Analysis
The Top Performing Airlines Right Now
Learn about the airline industry and its topperforming companies. Understand these topemerging airlines and why they have taken more market share. 
Investing
Go Green with a Investment in Green Bonds
If you want to invest in a socially responsible way, green bonds may be for you. And as the market grows retail investment opportunities will grow too. 
Fundamental Analysis
4 Utility Stocks that May Stay Bright
With interest rates likely rising in the next year or so, there are a few utility stocks with potential to outperform their peers. 
Fundamental Analysis
Making Sense of Netflix's Balance Sheet
Understand how to assess Netflix's performance based on the major components of its balance sheet.