Glossary

The expected return is a financial concept that refers to the estimated average return an investor anticipates on an investment over a specified period.

It is calculated by multiplying the possible outcomes by their respective probabilities of occurrence and then summing up the results. The expected return is crucial for making investment decisions, as it helps investors estimate potential rewards and weigh them against the associated risks. 📈

For example, if a stock has a 50% chance of yielding a 20% return and a 50% chance of yielding a 5% return, its expected return would be (0.5 * 20%) + (0.5 * 5%) = 12.5%.

Fun fact: Expected return is just an estimate based on historical data and assumptions; it does not guarantee future performance. Investors should remember that actual returns can vary significantly from the expected returns due to market fluctuations and other factors. 🎢