Enter the risk-free rate, beta coefficient of the stock, and the expected return from the market into the calculator to determine the required rate of return.

Required Rate of Return Formula

The following formula is used to calculate the required rate of return of an asset or stock.

RR = RFR – B * (RM-RFR)

  • Where RR is the required rate of return
  • RFR is the risk-free rate of return
  • B is the beta coefficient of the stock or asset
  • RM is the expected return of the market

Required Rate of Return Definition

A required rate of return is the minimum return a business or individual seeks to meet on a project, asset, or investment.

Required Rate of Return Example

How to calculate a required rate of return?

  1. First, determine a risk free rate.

    Calculate the risk-free rate of a risk-free asset like a bond.

  2. Next, determine the beta coefficient.

    Calculate the beta coefficient of the stock/investment.

  3. Next, determine the expected return.

    Calculate the expected return.

  4. Finally, calculate the required return.

    Calculate the required return using the equation above.

FAQ

What is a required rate of return?

A required rate of return is a minimum return a company seeks to achieve when investing in a certain stock or project.

What is a beta coefficient?

A beta coefficient is the measure of covariance between a particular stock and the overall mark divided by the overall variance of the market.

required rate of return calculator
required rate of return