Expected Return


DEFINITION of 'Expected Return'

The amount one would anticipate receiving on an investment that has various known or expected rates of return. For example, if one invested in a stock that had a 50% chance of producing a 10% profit and a 50% chance of producing a 5% loss, the expected return would be 2.5% (0.5 * 0.1 + 0.5 * -0.05). It is important to note, however, that the expected return is usually based on historical data and is not guaranteed.


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BREAKING DOWN 'Expected Return'

For the most part, the expected return is a tool used to determine whether or not an investment has a positive or negative average net outcome - it is not a hard and fast figure of profit or loss. In the example above, for instance, the 2.5% expected return cannot, in fact, be realized - it is merely an average.

In addition to expected return, wise investors should also consider the probability of return in order to properly assess risk. After all, one can find instances in which certain lotteries offer a positive expected return, despite the very low probability of realizing that return.

  1. Excess Returns

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  2. Required Rate Of Return - RRR

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  3. On Stream

    An investment that is on track to earn its expected return. Stocks, ...
  4. Coefficient Of Variation - CV

    A statistical measure of the dispersion of data points in a data ...
  5. Actual Return

    The actual gain or loss of an investor. This can be expressed ...
  6. Abnormal Return

    A term used to describe the returns generated by a given security ...
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