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The expected return is the average of the possible returns, each weighted by its probability.
The '''expected return''' is the average of the possible returns, each weighted by its [[probability]].
For example, if an investment has a 50% chance of earning a 5% return, a 25% chance of earning 10% and a 25% chance of losing 10%, then its expected return would be calculated as follows:
For example, if an investment has a 50% chance of earning a 5% return, a 25% chance of earning 10% and a 25% chance of losing 10%, then its expected return would be calculated as follows:
:= .025 + .025 - .025
:= .025 + .025 - .025
:= 2.5%
:= 2.5%
[[Category:Economics]]
[[Category:Statistics]]