Required Rate of Return

Required Rate of Return

The required rate of return is the minimum return an investor or company should demand to buy a security or finance a project based on its risk characteristics. The Capital Asset Pricing Model, for example, calculates how much above the risk-free real rate of return an investor should demand to buy a security. Alternatively, companies or investors can use cost of capital as a proxy for determining the floor rate of return required to invest in or to fund a project.

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