Required Rate of Return (RRR)

The required rate of return (RRR) is the minimum return that an investor or investment requires in order to make an investment worthwhile. It is also known as the discount rate or the hurdle rate. The RRR is based on the investor's risk tolerance and investment goals.

There are a number of factors that can affect an investor's RRR, including:

• The level of risk associated with the investment
• The length of time the investment is expected to last
• The investor's financial situation
• The investor's investment goals

The RRR is used to determine the value of an investment. By calculating the present value of the future cash flows from an investment, the investor can determine if the investment is worth making.

The RRR is also used to compare different investments. By comparing the RRR of different investments, the investor can determine which investment is the best option.

The RRR is an important concept for investors to understand. It can help investors make informed investment decisions and achieve their financial goals.

Here are some additional details about the required rate of return:

• The RRR is often used in capital budgeting decisions. When a company is considering investing in a new project, it will need to determine the RRR for the project. If the RRR is higher than the company's cost of capital, then the project is not worth pursuing.
• The RRR can also be used to evaluate the performance of an investment. By comparing the actual return on an investment to the RRR, the investor can determine if the investment was a good decision.
• The RRR is a subjective measure. It is based on the investor's individual risk tolerance and investment goals. There is no one-size-fits-all RRR.

The required rate of return is an important concept for investors to understand. It can help investors make informed investment decisions and achieve their financial goals.