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Required Rate Of Return
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The required rate of return is the minimum rate of return (expressed as a percentage) that an investor requires before investing capital. The degree of risk associated with an investment is reflected in the required rate of return. Investors and analysts often use the required rate of return as a discount rate for future cash flows from an investment. The required rate of return is also referred to as RRR, the “Magic Number” and the hurdle rate. For many investors, a beginning point in stock valuation is calculating the required rate of return. The Capital Asset Pricing Model (CAPM) is a method used in determining the required rate of return associated with an investment. On occasion, the required rate of return is confused with the internal rate of return.
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