Expected Return: Formula, How It Works, Limitations, Example.

Expected Return: Formula, How It Works, Limitations, Example

Is expected return a percentage?

Expected return is the average return that an investor anticipates receiving from a security over a period of time. It is typically represented as a percentage. For example, if an investor expects to earn an annual return of 10% on a stock, the expected return would be 10%. What is risk and return in investment? Risk and return are two key concepts that are important to understand when investing.

Risk is the chance that an investment will lose money. The higher the risk, the greater the chance of losing money.

Return is the money that an investment earns. The higher the return, the more money you will earn on your investment.

When you are considering investing in something, you need to weigh the risk and return of the investment. You should always try to invest in something that has a high return and low risk. However, this is not always possible and you will need to decide what is most important to you: earning a lot of money or minimizing the chance of losing money.

Is expected value equal to mean? "Expected value" is a technical term with a precise definition, which is different from the common usage of "mean." In common usage, "mean" refers to the arithmetic average of a set of numbers, while "expected value" refers to a weighted average, where each number is weighted according to how likely it is to occur.

For example, suppose you have a bag of five marbles, four of which are white and one of which is black. The mean of the marble colors is (4*white + 1*black) / 5 = 3.8, but the expected value is (4/5)*white + (1/5)*black = 4.

In general, the expected value of a random variable is equal to the weighted sum of all the possible values of the variable, where each value is weighted according to its probability of occurring.

How do you calculate risk?

Risk is the chance or probability of losing money on an investment. The higher the risk, the greater the chance of losing money. There are many factors that affect the risk of an investment, such as the type of investment, the company's financial stability, the country's political stability, and the overall economic conditions.

There are many different ways to measure risk. One common way is to look at the volatility of an investment, which is a measure of how much the price of the investment fluctuates over time. A more volatile investment will have a higher risk because there is a greater chance of losing money.

Another way to measure risk is to look at the downside risk, which is the chance of the investment losing money. A higher downside risk means a higher chance of losing money.

There are many other ways to measure risk, but these are two of the most common.

What is risk/return analysis? Risk/return analysis is the process of evaluating the expected return of an investment (e.g., a stock, bond, or mutual fund) in relation to the risk associated with that investment. The goal of this analysis is to determine whether the expected return is worth the associated risk.

There are a number of different ways to measure risk, but the most common is standard deviation. This is a statistical measure of how much an investment's return varies from its average return over a period of time. The higher the standard deviation, the greater the risk.

expected return = the average return that an investment is expected to generate over a period of time
risk = the variability of an investment's return from its expected return