Required Rate Of Return Definition
The required rate of return is the minimum return that an investor will accept for investing in a project or security. The required rate of return takes into account the time value of money and the risk associated with the investment.
The required rate of return is also known as the hurdle rate or minimum acceptable rate of return. It is used to compare projects or securities with different risks. The higher the risk, the higher the required rate of return will be.
The required rate of return is used in capital budgeting to make investment decisions. It is the discount rate that is used to calculate the present value of future cash flows from an investment.
The required rate of return can be calculated using the CAPM model which measures the expected return of an asset based on its beta and the risk-free rate.
