﻿ explain the rate of return

# explain the rate of return

I prefer determining an annualized rate of return that takes into consideration the timing of investments and return, as well as compounding.Let me explain it using a simple example that we started above. Lets assume you made an investment on January 1, 2006. Say if you explain to a non-finance folk that IRR from the project is 15 and the hurdle rate of the company is 10, so one can easily make out that the company generates 5 extra return on the project. The effective rate of return is the rate of interest on an investment annually when compounding occurs more than once.It can be better explained this way that if an investment pays 5 percent per year but without any compounding than the effective rate of return will be 5 percent. Compute cost of capital Explain its relationship to minimum acceptable rate of return Compute debt-to-equity mix Compute weighted average cost of capital. 3. Comparing Mutually Exclusive Alternatives (Review). Explain how Internal Rate of Return is used in capital budgeting.It is also called the discounted cash flow rate of return (DCFROR) or the rate of return (ROR). In the context of savings and loans the IRR is also called the effective interest rate. Decision Rule. A project should only be accepted if its IRR is NOT less than the target internal rate of return. When comparing two or more mutually exclusive projects, the project having highest value of IRR should be accepted.Accounting Explained. Explain. (a) Stocks with a beta of zero offer an expected rate of return of zero.

If rf 5, and you expect the rate of return on the market portfolio to be 15, should you invest in this fund? What is the funds alpha? Abstract. By employing Lucas (1982) model, this study proposes an arbitrage relationship the Uncovered Equity Return Parity (URP) condition to explain the dynamics of exchange rates. Definition What is the Internal Rate of Return Ratio? This sounds a little confusing at first, but its pretty simple. Think of it in terms of capital investing like the companys management would.It might be easier to look at an example than to keep explaining it. [ Skip to Calculator ]. Explains expected rate of return (ERR) and calculates it for you using the dividend growth model for comparing stock investments. Explain the impact of a decline in interest rates on: a. An investors required rate of return.If a bonds coupon rate is above its required rate of return, would its price be above or below its par value? Explain. Mathematically, the IRR can be found by setting the Net Present Value (NPV) equation equal to zero (0) and solving for the rate of return (IRR).The Internal Rate of Return (IRR) is a popular measure of investment performance. While its normally explained using its mathematical definition (the discount In finance, return is a profit on an investment. It comprises any change in value and interest or dividends or other such cash flows which the investor receives from the investment. It may be measured either in absolute terms (e.