Home Forums Hurdle rate (to redemption)

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  • EPL Tutor
    Participant
    Post count: 495

    Hi Jason,

    Yes that’s correct.

    At its most basic, a hurdle rate is the minimum investment return required by the investor. Riskier investments therefore have higher hurdle rates than more cautious ones. Hurdle rates are not just for zero coupon bonds – although don’t confuse hurdle rates in the investment world with hurdle rates in the pensions world!

    If the hurdle rate is positive, the assets will need to grow – there will be a minimum investment return required.

    If the hurdle rate is negative, this means there is no minimum return needed as the assets are already sufficient to repay the bonds. The negative hurdle rate tells you how far the assets would need to fall in value before the assets would be insufficient to repay the bonds.

    Best,

    Michael

    Jason Cannan
    Participant
    Post count: 67

    Hi Michael,
    I my understanding of the hurdle rate to redemption for zeros correct in that if assets are currently below the value needed to cover the zeros that the hurdle rate will be a positive figure (ie that assets need to grow by that figure). And then if assets are above that needed that the HR will be a negative figure?
    Cheers

    Jason

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