Required Rate Of Return
very few investors are going to put money into a particular security or project if they don't know what the minimum return on their investment will be. however, there are some assurance out there and it's called the required rate of return. it helps investors decide where to put their money and allows them to compare the return on their investment to all other options. they can do this by taking the risk-free rate of return, inflation and liquidity into account. for example, ? is an investor who requires a return of 6% per year to consider a stock investment worthwhile. this assumes that she can easily sell the stock and that inflation remains at 2% per year. if she doesn't receive a 6% return which is really 4% after inflation, then she is better off putting her money into a risk-free instrument that earns her 2% per year. ? understands that the returns on stocks aren't guaranteed and will only invest in them unless she can earn a 4% premium over the risk-free option. the required rate of return is extremely subjective. it's different for every individual and every company depending on their tolerance for risk and their goals for investing in the first place.
- required rate of return・・・目標利益率
- risk-free rate of return・・・無リスク利益率