Hurdle Rate

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Definition of 'Hurdle Rate'

A hurdle rate is the minimum rate of return that an investment must generate in order to be considered worthwhile. It is also known as the required rate of return or the cut-off rate. The hurdle rate is used to compare the potential returns of different investments and to decide which ones to pursue.

There are a number of factors that can be used to determine the hurdle rate for an investment, including the risk of the investment, the expected return on other investments, and the investor's personal financial goals. For example, an investor who is looking for a safe investment with a low risk may have a lower hurdle rate than an investor who is willing to take on more risk in exchange for a higher potential return.

The hurdle rate can also be used to evaluate the performance of an investment after it has been made. If the investment is generating returns that are below the hurdle rate, it may be time to sell the investment and invest in something else.

The hurdle rate is an important tool for investors to use when making investment decisions. It can help them to compare different investments and to make sure that they are not taking on too much risk.

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