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All investments have a required rate of return based on a number of factors.
Essentially, present cash flows are known, future cash flows can be reasonably estimated, and the level of risk and thus required rate of return is a given or at least can be accurately estimated using historical stock price covariance with the market and/or that of benchmark companies of the same size, stage of development, and/or therapeutic area (Stewart et al. 2001).
Since yields are determined by the capital markets' required rate of return for any given security, the perception of risk can be just as important -- if not more important -- than the reality.
FDIC insurance keeps depositors thinking their deposits are safe so they ask for a less than market required rate of return, debt investors look for the next bailout and the Fed, completely in the pocket of the bankers, keeps rates at whatever level that maximizes returns to bankers regardless of how much it harms savings levels in the country and retired folks living on their investment income.
To decide whether you wish to invest in a bond, set your own minimum required rate of return.
Divide the discount rate required by the number of periods per year to arrive at the required rate of return per period, k.
Similar(45)
The new levy, by contrast, discriminates against uncertain ventures that require high rates of return to justify their risks, points out Jonathan Pincus of the University of Adelaide.
And, third, that the country remains as coup-prone and unstable as ever.Businesses are used to factoring in such costs and risks but, to compensate for these, they require a high rate of return before proceeding with a proposed venture.
By contrast, when the young have more influence, the economy has more capital than the efficient level, wages are relatively high, and the market solution requires a low rate of return from money holdings that is, a relatively high inflation rate.A new IMF working paper turns up similar evidence: that monetary-policy effectiveness falls as a population ages.
The CHEs were subject to normal company law and were required to earn a rate of return on capital comparable to that of the business sector.
2. Rate-of-Return Assumptions.
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Justyna Jupowicz-Kozak
CEO of Professional Science Editing for Scientists @ prosciediting.com