# Expected Return

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Related to Expected Return: expected rate of return

## Expected return

The expected return on a risky asset, given a probability distribution for the possible rates of return. Expected return equals some risk-free rate (generally the prevailing U.S. Treasury note or bond rate) plus a risk premium (the difference between the historic market return, based upon a well diversified index such as the S&P 500 and the historic U.S. Treasury bond) multiplied by the asset's beta. The conditional expected return varies through time as a function of current market information.

## 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.

## Expected Return

The expected return is used to figure the taxable portion of pension that is taxed under the general rule. For a lifetime pension, it is computed by multiplying the annual pension by the applicable expected life multiple from government actuarial tables.
References in periodicals archive ?
The paper then tests directly the relevance of country risk premium in individual stocks' expected returns in the Brazilian market.
The volatility and the expected return at the tangency point on the efficient frontier are a function on the expected returns, r, of the assets in the portfolio, the expected excess returns of the assets above the risk-free rate, [r.sub.i.sup.T] = [[r.sub.1] - [r.sub.fi],..., [r.sub.N] - [r.sub.fi]], and the inverse of the variance-covariance matrix of the assets, [S.sup.-1].
The objective is to minimize the variance of expected returns subject to a lower bound target expected return and the usual constraints:
To achieve an 8 percent expected return today, a pension must build a portfolio with a standard deviation of returns of around 14 percent.
* Passive asset class fund portfolios can be designed with the expectation of delivering over time the highest expected returns for a chosen level of risk.
Under this scenario current property valuations look much less attractive for investors as expected returns are lower.
If one is interested in the expected return in any given month, the average returns across firms conditional on their existence would weight each firm's average return for the months that it exists by the number of months that the firm is in existence relative to other firms.
TEN LARGE DOWN made an earlier than expected return to the track yesterday when clocking a superb 15.92sec (+20) in a 280m trial at Sheffield.
If iwi added the fisheries assets to a well-diversified portfolio, the expected return calculated using the classical Capital Asset Pricing Model ('CAPM'), developed by Sharpe (1964) and Lintner (1965), would adequately compensate iwi for bearing solely market risk.
(1) Expected Return. To calculate the annuity's exclusion ratio, the expected return is divided into the investment in the contract.

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