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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 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. Want to thank TFD for its existence? Tell a friend about us, add a link to this page, add the site to iGoogle, or visit the webmaster's page for free fun content. |
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