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Expected Value |
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Expected value The weighted average of a probability distribution. Also known as the mean value. Expected Value The return on an investment as estimated by an asset pricing model. It is calculated by taking the average of the probability distribution of all possible returns. To give a very simple example, a model might state that an investment has a 10% chance of a 100% return and a 90% chance of a 50% return. The expected rate of return is calculated as: Expected Value = 0.1(1) + 0.9(0.5) = 0.55 = 55%. It is important to note that there is no guarantee that the expected rate of return and the actual return will be the same. Statistically, the expected value is the mean value of the probability distribution. It is also called the expected rate of return. See also: Abnormal return. How to thank TFD for its existence? Tell a friend about us, add a link to this page, add the site to iGoogle, or visit webmaster's page for free fun content. |
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| For example, say you were attempting to derive an expected value for sales/revenue for the following company: Therefore, in concert with Assumption I, it is generally assumed that the common expected value is equal to Y, i. In 1997, it was 39 cents below the expected value, and by the 2001 crop year, the average price of $4. |
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