Expected future return

Expected future return

The return that is expected to be earned on an asset in the future. Also called the expected return.

Expected Return

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. For 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 return is calculated as:

Expected Return = 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. See also: Abnormal return.
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That is, all else equal, the price-to-dividend ratio should be high when expected future dividend growth is high or when the expected future return to the asset is low.
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