06 December 2013
Simply stated reinvestment rate is the return earned by investing the inflow streams of original investment. Example: Suppose you invested in a bank fd with monthly interest receipt option. If you reinvest the monthly interest in another investment say a recurring deposit, the rate you earn on RD is called reinvestment rate.
Reinvestment rate helps in ascertaining the total return on our original investment. Further, reinvestment rate helps us know how much a firm is reinvesting in business for its future growth. The reinvestment could be in R&D, or new projects or acquisitions etc. A firm with high reinvestment will be having high growth rate as well.
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