Required Rate of Return Calculator
The Required Rate of Return (RRR) is the minimum annual percentage return an investor expects to receive from an investment, considering its risk. It's a crucial metric for evaluating investment opportunities and making informed decisions. Essentially, it answers the question: "What's the least return I need to justify taking on this investment's risk?"
A common method for calculating the Required Rate of Return is the Capital Asset Pricing Model (CAPM). The formula is:
RRR = Risk-Free Rate + Beta * (Market Return – Risk-Free Rate)
Risk-Free Rate (%)
Beta
Market Return (%)
Calculate Required Rate of Return
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function calculateRRR() {
var riskFreeRate = parseFloat(document.getElementById("riskFreeRate").value);
var beta = parseFloat(document.getElementById("beta").value);
var marketReturn = parseFloat(document.getElementById("marketReturn").value);
var resultElement = document.getElementById("result");
if (isNaN(riskFreeRate) || isNaN(beta) || isNaN(marketReturn)) {
resultElement.textContent = "Please enter valid numbers for all fields.";
resultElement.style.backgroundColor = "#f8d7da";
resultElement.style.color = "#721c24";
return;
}
// CAPM Formula: RRR = Risk-Free Rate + Beta * (Market Return – Risk-Free Rate)
var requiredRateOfReturn = riskFreeRate + beta * (marketReturn – riskFreeRate);
resultElement.textContent = "Required Rate of Return: " + requiredRateOfReturn.toFixed(2) + "%";
resultElement.style.backgroundColor = "#d4edda";
resultElement.style.color = "#155724";
}