Definition of 'Reinvestment Rate'
For example, if an investment earns a 10% return and the reinvestment rate is also 10%, then the investment will double in value in seven years. However, if the reinvestment rate is only 5%, then the investment will take 14 years to double in value.
The reinvestment rate is often used in conjunction with the time value of money to calculate the future value of an investment. The time value of money is the idea that a dollar today is worth more than a dollar in the future, due to the fact that the dollar today can be invested and earn interest.
The reinvestment rate is important because it can affect the future value of an investment. By understanding the reinvestment rate, investors can make more informed decisions about their investments.
Here are some additional things to keep in mind about the reinvestment rate:
* The reinvestment rate is not always the same as the interest rate on an investment. For example, if an investment earns a 10% return, but the reinvestment rate is only 5%, then the investment will not grow as quickly as it could.
* The reinvestment rate can be affected by a number of factors, including inflation, interest rates, and economic conditions.
* It is important to consider the reinvestment rate when making investment decisions. By understanding the reinvestment rate, investors can make more informed decisions about their investments and potentially achieve their financial goals.
Do you have a trading or investing definition for our dictionary? Click the Create Definition link to add your own definition. You will earn 150 bonus reputation points for each definition that is accepted.
Is this definition wrong? Let us know by posting to the forum and we will correct it.