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rate of return |
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Definition of rate of returnrate of returnTotal income per period per dollar invested. Rate of Returnreturn on invested capital (calculated as a percentage). Often an investor has, as one of their investment criteria, a minimum acceptable rate of return on an acquisition.
Related Terms:Accounting rate of return (ARR)A method of investment appraisal that measures accounting rate of return (ARR)the rate of earnings obtained on the average capital investment over the life of a capital project; computed as average annual profits divided by average investment; not based on cash flow After-tax real rate of returnMoney after-tax rate of return minus the inflation rate. Arithmetic average (mean) rate of returnArithmetic mean return. Average rate of return (ARR)The ratio of the average cash inflow to the amount invested. book rate of returnAccounting income divided by book value. Dollar-weighted rate of returnAlso called the internal rate of return, the interest rate that will make the Incremental internal rate of returnIRR on the incremental investment from choosing a large project Internal rate of returnDollar-weighted rate of return. Discount rate at which net present value (NPV) Internal rate of return a. The average annual yield earned by an investment during the period held. Internal rate of returnThe rate of return at which the present value of a series of future Internal rate of return (IRR)A discounted cash flow technique used for investment appraisal that calculates the effective cost of capital that produces a net present value of zero from a series of future cash flows and an internal rate of return (IRR)The precise discount rate that makes the Internal Rate of Return (IRR)The discount rate that equates the present value of the net cash internal rate of return (IRR)the expected or actual rate of internal rate of return (IRR)Discount rate at which project NPV = 0. Money rate of returnAnnual money return as a percentage of asset value. Portfolio internal rate of returnThe rate of return computed by first determining the cash flows for all the RATE OF RETURN ON STOCKHOLDERS’ EQUITYThe percentage return or profit that management made on each dollar stockholders invested in a company. Here’s how you figure it: RATE OF RETURN ON TOTAL ASSETSThe percentage return or profit that management made on each dollar of assets. The formula is: Rate of return ratiosRatios that are designed to measure the profitability of the firm in relation to various Riskless rate of returnThe rate earned on a riskless asset. Target rate of return pricingA method of pricing that estimates the desired return on investment to be achieved from the Time-weighted rate of returnRelated: Geometric mean return. Multiple rates of returnMore than one rate of return from the same project that make the net present value Alpha equationThe alpha of a fund is determined as follows: Annual percentage yield (APY)The effective, or true, annual rate of return. The APY is the rate actually Annualized holding period returnThe annual rate of return that when compounded t times, would have Asset pricing modelA model for determining the required rate of return on an asset. Asset pricing modelA model, such as the Capital Asset Pricing Model (CAPM), that determines the required Basis pricePrice expressed in terms of yield to maturity or annual rate of return. Beta equation (Mutual Funds)The beta of a fund is determined as follows: Beta equation (Stocks)The beta of a stock is determined as follows: Bull CD, Bear CDA bull CD pays its holder a specified percentage of the increase in return on a specified capital budgetingRefers generally to analysis procedures for ranking capital investment analysisRefers to various techniques and procedures company cost of capitalExpected rate of return demanded by investors in a company, determined by the average risk of the company’s assets and operations. Corporate taxable equivalentrate of return required on a par bond to produce the same after-tax yield to Cost of CapitalThe minimum rate of return a company must earn in order to meet Cost of Common StockThe rate of return required by the investors in the common stock of Cost of EquitySame as the cost of common stock. Sometimes viewed as the Cost of lease financingA lease's internal rate of return. Cost of Preferred StockThe rate of return required by the investors in the preferred stock of Country betaCovariance of a national economy's rate of return and the rate of return the world economy discount ratethe rate of return on investment that would be required by a prudent investor to invest in an asset with a specific level risk. Also, a rate of return used to convert a monetary sum, payable or receivable in the future, into present value. discount ratethe rate of return used to discount future cash Discount RateA rate of return used to convert a monetary sum, payable or receivable in the future, into present value. Discounted Cash FlowTechniques for establishing the relative worth of a future investment by discounting (at a required rate of return) the expected net cash flows from the project. dividend growth methoda method of computing the cost Effective Annual YieldAnnualized rate of return on a security computed using compound Efficient Market HypothesisIn general the hypothesis states that all relevant information is fully and Factor modelA way of decomposing the factors that influence a security's rate of return into common and financial leverageThe equity (ownership) capital of a business can serve Fisher effectA theory that nominal interest rates in two or more countries should be equal to the required real Fisher ratethe rate of return that equates the present values Geometric mean returnAlso called the time weighted rate of return, a measure of the compounded rate of guaranteed investment certificate (GIC)A GIC is an investment that gives you a guaranteed rate of return over a fixed period of time, usually between 30 days and 5 years. GICs are available from banks, trust companies, and other financial institutions. Holding period returnThe rate of return over a given period. hurdle ratea preestablished rate of return against which Hurdle rateThe minimum rate of return that a capital purchase proposal must pass Hurdle RateA pre-determined benchmark rate of return. If the rate of return expected from the project or investment falls below the benchmark, the projected investment will no longer be accepted. Implied volatilityThe expected volatility in a stock's return derived from its option price, maturity date, Intrinsic value of a firmThe present value of a firm's expected future net cash flows discounted by the IRRSee internal rate of return. judgmental method (of risk adjustment)an informal method of adjusting for risk that allows the decision maker MM's proposition IIThe required rate of return on equity increases as the firm’s debt-equity ratio increases. net present value methoda process that uses the discounted opportunity cost of capitalthe highest rate of return that opportunity cost of capitalExpected rate of return given up by investing in a project. Profitability ratiosRatios that focus on the profitability of the firm. Profit margins measure performance project cost of capitalMinimum acceptable expected rate of return on a project given its risk. return on capitalincome; it is equal to the rate of return multiplied by the amount of the investment RETURN ON INVESTMENT (ROI)In its most basic form, the rate of return equals net income divided by the amount of money invested. It can be applied to a particular product or piece of equipment, or to a business as a whole. riskRisk measures the possibility that your investment may lose or gain value as compared to the expected rate of return. Risk is different from uncertainty, which is not measurable. Risk-free RateThe rate of return on an investment with known future benefits; a Risk-Free RateThe rate of return obtainable on government of Canada treasury bills. Risk PremiumThe additional rate of return required on a risky project Risk PremiumThe difference between the required rate of return on a riskless asset with the same expected life. Rule of 72This is a very important rule to know. The rule is that the number 72 divided by the rate of return of your investment equals the number of years it takes for your investment to double. Security Market LineA graph illustrating the equilibrium relationship between the Total returnIn performance measurement, the actual rate of return realized over some evaluation period. In Treynor IndexA measure of the excess return per unit of risk, where excess return is defined as the Volatilitya. Another general term for sensitivity. b. The standard deviation weighted average cost of capitala composite of the cost of the various sources of funds that comprise a firm’s capital structure; the minimum rate of return that must be earned on new investments so as not to dilute shareholder value weighted-average cost of capital (WACC)Expected rate of return on a portfolio of all the firm’s securities, adjusted for tax savings due to interest payments. YieldThe percentage rate of return paid on a stock in the form of dividends, or the effective rate of interest Yield to maturityThe percentage rate of return paid on a bond, note or other fixed income security if you Yield to MaturityThe measure of the average rate of return that will be earned on a Yield to maturityA measure of the average rate of return that will be earned Abnormal returnsPart of the return that is not due to systematic influences (market wide influences). In Absolute Right of ReturnGoods may be returned to the seller by the purchaser without restrictions. Accelerated cost recovery system (ACRS)Schedule of depreciation rates allowed for tax purposes. Accelerated depreciationAny depreciation method that produces larger deductions for depreciation in the accelerated depreciation(1) The estimated useful life of the fixed asset being depreciated is Accelerated depreciationAny of several methods that recognize an increased amount Active portfolio strategyA strategy that uses available information and forecasting techniques to seek a Adjustable rate preferred stock (ARPS)Publicly traded issues that may be collateralized by mortgages and MBSs. All equity rateThe discount rate that reflects only the business risks of a project and abstracts from the
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