What is a Crossover Rate?
Crossover rates have to do with the amount of earnings that are generated by two different but similar projects. The crossover rate is the point at which the two projects achieve the same net present value. In terms of investments, calculating a crossover rate between two similar securities can help an investor determine what to buy and what to sell. It is important to note that the crossover rate serves as an indicator of the relative performance of two different securities. This does not necessarily mean that the two securities in question are performing in a similar manner. It is very possible that the two different but similar securities carry a different rate of volatility. Because the two securities under comparison may carry different levels of risk and movement, the crossover rate becomes a helpful method of making a decision to hold on to both securities or to sell off one of the two. Depending on the goals of the investor, he or she may choose to retain the security with the
