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.
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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?
- First, determine a risk free rate.
Calculate the risk-free rate of a risk-free asset like a bond.
- Next, determine the beta coefficient.
Calculate the beta coefficient of the stock/investment.
- Next, determine the expected return.
Calculate the expected return.
- Finally, calculate the required return.
Calculate the required return using the equation above.
A required rate of return is a minimum return a company seeks to achieve when investing in a certain stock or project.
A beta coefficient is the measure of covariance between a particular stock and the overall mark divided by the overall variance of the market.