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Simple English definitions for legal terms
fair rate of return
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A quick definition of fair rate of return:
A fair rate of return is the amount of profit that a public utility is allowed to make, as decided by a public utility commission. It is also the annual income earned from an investment, expressed as a percentage of the investment. Another method of evaluating the return on an investment is the internal rate of return, which is used to determine the actual return on a long-term project.
A more thorough explanation:
Definition: Fair rate of return refers to the amount of profit that a public utility is allowed to earn, as determined by a public utility commission. It can also refer to the annual income from an investment, expressed as a percentage of the investment.
For example, if a public utility company is allowed to earn a fair rate of return of 10%, it means that they can make a profit of 10% on their investment. Similarly, if an individual invests $1000 and earns an annual income of $100 from that investment, the rate of return would be 10%.
The concept of fair rate of return is important in regulating public utilities to ensure that they do not charge excessive rates to consumers. It also helps investors to evaluate the profitability of their investments.