What is a hurdle rate?

A hurdle rate represents the minimum expected return rate that an investment must achieve for it to be considered viable or attractive. This benchmark is often set based on the risk associated with the investment and the opportunity cost of capital, meaning the returns that could be earned on alternative investments with similar risk profiles.

Understanding the hurdle rate is crucial for investors and companies, as it helps them evaluate whether the potential return justifies the risks taken by committing to the investment. If the projected return of the investment does not meet or exceed this hurdle rate, it is typically viewed as unworthy of investment.

The other choices describe different financial concepts and do not accurately capture the essence of the hurdle rate. For instance, the idea of a maximum acceptable rate of return is more aligned with risk-averse investing strategies rather than defining a starting point for acceptable returns. Similarly, average market return and the lowest price at which an asset can sell do not relate to the threshold required for evaluating investment performance.