Difference between revisions of "Expected return"
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(New page: 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 earn...) |
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:= .025 + .025 - .025 | := .025 + .025 - .025 | ||
:= 2.5% | := 2.5% | ||
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Revision as of 12:42, June 18, 2007
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:
- Expected Return = (0.5) (0.05) + (0.25) (0.1) + (0.25) (-0.1)
- = .025 + .025 - .025
- = 2.5%