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I wonder if most people realise the meaning of required rate of return when they learn the basics of finance.

The "required rate" is determined by the issuer of the loan each time a loan is issued. US credit card issuers charge up to 30%, including fees, etc. 15% to 18% returns on equity is the rate that TBTF financial pirates "require" on an ongoing basis. The Fed is "requiring" almost nothing for TBTFs just now. Everyone else falls in between. Other than the Fed, if anyone reasonably thought they could get a higher return, consistent with acceptable risk, they would "require" that higher rate.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Thu May 20th, 2010 at 06:08:14 PM EST
[ Parent ]
This required rate of return is of course denominated in fiat currency eg $, €, £ - issued as a claim over debt.

The required rate of return by an investor in gold or in energy, on the other hand is zero per cent. These investors are not aiming to make a profit: they are aiming to avoid a loss.

There are currently tens of billions invested in energy markets - typically through futures markets and structured finance, but occasionally directly "peer to peer" (eg Shell's transaction with ETF Securities) - at zero percent in dollar terms.

Such funds could easily be deployed as direct investment in future energy production. Renewable energy, and energy savings, then have an advantage over all other forms, since it is possible to monetise energy which is essentially free.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Fri May 21st, 2010 at 08:37:29 PM EST
[ Parent ]


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