Expected Return

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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.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

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.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved

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.
Copyright © 2008 H&R Block. All Rights Reserved. Reproduced with permission from H&R Block Glossary
References in periodicals archive ?
Semivariance is an improvement of variance, which allows us to obtain the higher expected return rate under the same level of risk.
Based on the notations above, if the investor wants to maximize the expected return rate, the equilibrium portfolio optimization problem in hybrid uncertain decision systems is built as the following EV-ERV model:
Let r = ([r.sub.1], [r.sub.2], ..., [r.sub.n])' be the return rates of the assets, with [bar.r] = ([[bar.r].sub.1], [[bar.r].sub.2], ..., [[bar.r].sub.n]) being the expected return rate of the given period.
If the return rate of an investment is more than the expected return rate, the value of the asset is increased and their wealth is also increased.
This means that the expected return rate of the bank as a function of interest rate is not monotonic in point [r.sup.*].
The company said that the project's cost, with engineering and design work almost complete, construction to begin in January 2012 and the project startup planned by December 2012, will be about USD79m with an expected return rate of 15% to 20%.
We define [b.sub.M] = [[summation].sup.n.sub.i=1] [x.sub.i] ([b.sub.i] - r) as the expected return rate on the market portfolio, [[lambda].sub.m] = [[summation].sup.n.sub.i=1] [x.sub.i][[lambda].sub.i] as the information cost rate on the market and [[sigma].sub.i,M] = [[summation].sup.n.sub.i=1] [x.sub.j][[sigma].sub.i][[sigma].sub.j][[rho].sub.i,j] as the covariance of the return on the i th stock with the return on the market portfolio, [[sigma].sup.2.sub.M] = [n.summation over (j=1)] [x.sub.j][[sigma].sub.j,M] as the variance of the market portfolio respectively.
However, the expected return rate is typically higher than the discount rate, and this creates its own anomaly.
These percentages not only exceeded the expected return rate of 30 percent but also exceeded the 15 percent rate for significance of data.
Expected return rates are another important aspect to look at.
California, which runs some of the nation's largest public pension funds, recently voted to lower the expected return rates of its employee and teacher retirement funds from 7.5 percent to 7 percent.
However, with interest rates trending upward, budget deficits soaring, and the economy softening, a strong case can be made that expected return rates are still too high.

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