What is a '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).
BREAKING DOWN '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.

RiskFree Return
The theoretical rate of return attributed to an investment with ... 
Return
The gain or loss of a security in a particular period. The return ... 
Rate Of Return
The gain or loss on an investment over a specified period, expressed ... 
Accounting Rate of Return  ARR
The amount of profit, or return, that an individual can expect ... 
RiskFree Rate Of Return
The theoretical rate of return of an investment with zero risk. ... 
Cost Of Equity
In financial theory, the return that stockholders require for ...

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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. 
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How to Calculate Required Rate of Return
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What Investors Should Know About Interest Rates
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Understanding Market Risk Premium
Market risk premium is equal to the expected return on an investment minus the riskfree rate. The riskfree rate is the minimum rate investors could expect to receive on an investment if it ... 
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RiskFree Rate of Return
The riskfree rate of return is the theoretical rate of return of an investment with zero risk. The riskfree rate represents the interest an investor would expect from an absolutely riskfree ... 
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How to Calculate Risk Premium
Think of a risk premium as a form of hazard pay for risky investments. 
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Calculating the Equity Risk Premium
Equity risk premium is the excess expected return of a stock, or the stock market as a whole, over the riskfree rate. 
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What's a Real Rate of Return?
A real rate of return is an annual percentage investment return thatâ€™s adjusted for inflation, taxes or other factors.

What is the difference between the cost of capital and required return?
Take a look at the primary conceptual differences between an investor's required rate of return and an issuing company's ... Read Answer >> 
How is the expected market return determined when calculating market risk premium?
Find out how the expected market return rate is determined when calculating market risk premium and how these figures are ... Read Answer >> 
How does market risk affect the cost of capital?
Find out how market risk directly affects the total cost of capital, including how to use the capital asset pricing model ... Read 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 Answer >> 
How accurate is the equity risk premium in evaluating a stock?
Learn about the drawbacks of using the equity risk premium to evaluate a stock, and understand how it is calculated using ... Read Answer >> 
How is it possible for a rate to be entirely riskfree?
Find out whether there really is such a thing as a riskfree rate of return, and learn why taking the idea of riskfree rates ... Read Answer >>