Expected return is the amount of profit or loss an investor anticipates on an investment that has various known or expected rates of return.

How is the expected market return determined when calculating market risk premium? | Investopedia

It is calculated by multiplying potential outcomes by the chances of them occurring, and summing these results. 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. In addition to expected return, wise investors should also consider the probability of return in order to properly assess risk.

P-4 EXPECTED AND REQUIRED RATES OF RETURN Assume T | eqogypacuc.web.fc2.com

After all, one can find instances in which certain lotteries offer a positive expected return, despite the very low probability of realizing that return.

The expected return doesn't just apply to single investments. It can also be analyzed for a portfolio containing many investments. If the expected return for each investment global autotrading vs eoption known, the portfolio's overall expected return is simply a weighted average of the expected returns of its components. For example, assume the following portfolio of stocks:.

Thus, the expected return of the total portfolio is:. It is quite dangerous to intraday tips stock market investment decisions based on expected returns alone.

Investors should always review the risk characteristics of investment opportunities before making any buying decisions, to determine if the investments align with their portfolio goals.

For example, assume two hypothetical investments exist.

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Forex atr stop annual performance results for the last five years are:. But when analyzing expected return for overall stock market risk of each, as defined by standard deviation, Investment A is approximately five times more risky than Investment B Investment A has a standard deviation of Dictionary Term Of The Day.

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Sophisticated content for financial advisors around investment strategies, industry trends, and advisor education. Mean Return Return Total Return Annualized Total Return Market Portfolio Modern Portfolio Theory - MPT Target Return Estimated Long-Term Return Negative Return.

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