What is Required Rate of Return?
Ahead of talking about how to calculate required rate of return, let us define it. Required Rate of return(RRR) is the minimum acceptable return on investment sought by individuals or companies considering an investment opportunity.
RRR is also used to calculate how profitable a project might be relative to the cost of funding that project.
Formula to calculate required rate of return.
Suppose the expected dividend payment is $ 50 and the current stock price is $200, calculate the RRR if the growth rate is 5%.
Therefore, your RRR is 30%.