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 ... 
Nordic Model
The social welfare and economic systems adopted by Nordic countries.

How do you calculate costs of capital when budgeting new projects?
Discover how a company should estimate its costs of capital when budgeting for a new business project using the weighted ... 
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 ... 
How do treasury bill prices affect other investments?
Find out how the price and yield of Treasury bills can impact the level of risk investors are willing to accept in their ... 
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 ...

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. 
Fundamental Analysis
Is Apple's Stock Over Valued Or Undervalued?
Despite several drawbacks, the CAPM gives an overview of the level of return that investors should expect for bearing only systematic risk. Applying Apple, we get annual expected return of about ... 
Bonds & Fixed Income
Figuring Out How To Cover Your Liability Bases
Whenever we talk about the assetliability approach to portfolio management (ALM), the concepts of immunization and cash flow matching come into play. 
Economics
What Would Happen If Interest Rates Rise?
This time around, while U.S. longterm yields have rebounded from their January lows, rates have generally been lower than where they ended 2014. 
Fundamental Analysis
The Best 5 Online Accounting Systems For Small Business
Running a small business can be difficult, but thanks to these online accounting services, taking care of payroll doesn't have to be. 
Investing
What Has Been Groupon’s Growth Strategy?
Groupon established a strategy with efforts to become a broader force in the ecommerce world and to expand more strongly into international markets. 
Economics
The Impact Of Ending The US Embargo On Cuba
Many argue that ending the US embargo on Cuba will not only make US consumers happy, but also help the US economy and bring more freedoms to Cuba.