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Rate of Return Related Questions

What is the meaning of rate of return?

The rate of return refers to the ratio of money that may be gained or lost on an investment. It is calculated on the basis of the amount of money that is invested. It is also called rate on investment or rate of profit at times. In most situations, the capital asset pricing model may be used to calculate the rate of return on the asset. This is calculated by taking into account the sensitivity of the asset to non-diversifiable risk. Find more answers to rate of return questions.

How is the rate of return calculated for common stock equity?

The rate of return on common stock equity is calculated by dividing the net income less preferred dividends by the average common stock holder’s equity.

What is the formula for calculating the rate of return for a perpetual preferred stock that pays a fixed dividend?

The formula for calculating the rate of return for a perpetual preferred stock that pays a fixed dividend is the dividend amount divided by the price of the stock.

What are the factors that affect the rate of return when an investment matures?

The factors that affect the rate of return when an investment matures are the rate of interest, length of time of the investment and the primary value of the investment.

What is the formula to find out the value of preferred stock if one knows the rate of return and the dividend?

If one knows the rate of return and dividend, the formula for calculating the value of preferred stock will be as follows:

Preferred Stock = Dividend/Rate of Return.

Would a company’s required rate double if its beta doubled?

The company’s required rate may not double if the company’s beta doubled. This is because the rate of return would also be a part of the Capital Asset Pricing Model (CAPM) for calculating the required return.

What is the formula to calculate the rate of inflation?

The formula to calculate the rate of inflation will be as follows:

Inflation = Nominal Rate – Real Rate.

How would a company’s value be affected by the rate of return?

A company’s rate of return and firm value may be related. The company’s firm value will increase if its rate of return increases.

If you own a company or have money invested in a firm, it is important for you to fully understand the various financial aspects of the company. The rate of return is one such thing. The rate of return of a company can have a great impact on how the company does in the market. Hence, knowledge of what the rate of return means and how it works will help you in making your investment decisions. However, not all aspects of finance may be easy to understand and as a result you may have various questions that you may need answers to. You may ask an Expert if you have any questions about the rate of return or need more information.
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