• Risk of the investment. A company or investor may insist on a higher required rate of return for what is perceived to be a risky investment, or a lower return on a correspondingly lower-risk investment.
• Liquidity of the investment. If an investment cannot return funds for a number of years, this effectively increases the risk of the investment, which in turn increases the required rate of return.
• Inflation. The required rate of return must be layered on top of the expected inflation rate. Thus, a high expected inflation rate will drastically increase the required rate of return.
Lellah answered the question on November 8, 2021 at 08:32
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