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An investor's required rate of return is the minimum return that an investor expects to achieve from an investment, considering its risk level. It serves as a benchmark for evaluating the attractiveness of an investment compared to alternative options. This rate often incorporates factors such as the risk-free rate, the investment's risk premium, and market conditions. Investors use it to determine whether the potential returns justify the risks involved.
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What is the rate of return required by investors in the market for owning a bond called?
YTM
For markets to be in equilibrium the expected rate of return must be what?
For markets to be in equilibrium, the expected rate of return must equal the required rate of return. This means that investors are neither incentivized to buy nor sell an asset because the potential returns align with their risk tolerance and investment goals. When the expected returns diverge from the required returns, it leads to market adjustments until equilibrium is restored.
Does the capital asset pricing model help us to get required rate of return or expected rate of return?
expected rate of return
Why do bond investors have lower required rates of return than do stock investors?
They take less risk, theoretically, so they have lower expectations.
Relationship btwn an investor's required rate of return and value of security?
Relationship btwn an investor's required rate of return and value pf security
Relationship between required rate of return and coupon rate on the value of a bond?
required rate of return is the 'interest' that investors expect from an investment project. coupon rate is the interest that investors receive periodically as a reward from investing in a bond
What is the rate of return required by investors in the market for owning a bond called?
YTM
The cost of equity and the required rate of return are equal to what?
The cost of equity is the return that investors expect for holding a company's equity, reflecting the risk of the investment. The required rate of return is the minimum return an investor expects to earn from an investment, compensating for its risk. In essence, the cost of equity and the required rate of return are equal as they both represent the expected return that justifies the risk taken by investors in equity securities.
What are the three basic factors that influence the required rate of return for an investor?
The three basic factors that influence the required rate of return for an investor are the risk-free rate of return, the expected return from the investment, and the risk premium associated with the investment. Investors typically demand a higher rate of return for riskier investments.
What is the relationship between required rate of return and coupon rate on the value of bond?
The relationship between the required rate of return and the coupon rate significantly affects a bond's value. If the required rate of return is higher than the coupon rate, the bond will typically trade at a discount, as investors seek higher yields elsewhere. Conversely, if the required rate of return is lower than the coupon rate, the bond will trade at a premium, since it offers more attractive returns relative to current market rates. Thus, changes in the required rate of return directly influence the bond's market price.
If Cabell Corp bonds pay an annual coupon rate of 10 percent and the investors required rate of return is now 8 percent on these bonds what will be the price?
par value
Why does the investors required rate of return differ from the firms cost of capital?
The investor's required rate of return differs from the firm's cost of capital because investors have varying risk tolerances, investment horizons, and required returns based on their individual circumstances. The firm's cost of capital reflects the average rate of return it needs to pay to finance its operations and investments, typically representing the weighted average of its debt and equity costs. Additionally, market conditions and specific project risks can influence the perceived return expectations for investors, leading to discrepancies. Ultimately, while both rates are related to the cost of financing, they are derived from different perspectives and considerations.
For markets to be in equilibrium the expected rate of return must be what?
For markets to be in equilibrium, the expected rate of return must equal the required rate of return. This means that investors are neither incentivized to buy nor sell an asset because the potential returns align with their risk tolerance and investment goals. When the expected returns diverge from the required returns, it leads to market adjustments until equilibrium is restored.
Do investors tend to decrease required rates of return over time for projects with longer lives?
Investors typically do not decrease required rates of return for projects with longer lives; in fact, they often require a higher rate to compensate for increased uncertainty and risk over extended periods. Longer-term projects may face more variability in cash flows, economic conditions, and market dynamics, leading investors to demand a greater return to offset these risks. Thus, while the required rate of return can fluctuate based on various factors, longer project lifespans generally justify a higher return requirement rather than a decrease.
How does a change in the required rate of return affect project's Internal Rate Of Return?
A change in the required rate of return will affect a project's Internal Rate of Return (IRR) by potentially shifting the project's feasibility. If the required rate of return increases, the project's IRR needs to be higher to be considered acceptable. Conversely, a decrease in the required rate of return could make the project's IRR more attractive.
Dividend of 1.00 If the expected long-run growth rate for this stock is 5.4 percent and if investors' required rate of return is 13.9 percent what is the stock price?
11.04 12.40 13.76 15.00 9.42
Increase in expected growth rate does what to required return rate?
An increase in a firm's expected growth rate would normally cause its required rate of return to
