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.
References in periodicals archive ?
Strong-form efficiency exists if all bets have expected values equal to one minus the takeout rate (Thaler and Ziemba [1988]).
The expected values of a Kentucky Lotto ticket may seem somewhat low, however, Kentucky offered volume discounts on lotto tickets that were not available in the other two states.
Similar to the UP lottery, the effects of changes in P* on individual expected values will depend upon the elasticity of entry.
The effect of price changes on individual expected values is summarized as:
This decision reflects the "risk-neutral" nature of using expected values, in that the technique weighs up the balance of the probabilities.
Therefore, if the task force multiplies the NPV for high functionality and high interoperability and the probability for high functionality and high interoperability, the expected value, or in this case, probability adjusted financial impact, can be determined.
One of these is setting expected values in the analytical procedures portion of an audit or review.
None of the methods allows for a rigorous evaluation of variation from expected values or leaves much room for negotiation where there is more than one interested party.
2, we discuss two assumptions, labeled as Assumption I and Assumption II, about the relationship between the laboratory expected values [X.
031 in ten trials, so closely approximate the theoretical expected values.
Adopts a broad perspective on risk, with focus on predictions and highlighting uncertainties beyond expected values and probabilities, allowing a more flexible approach than traditional statistical analysis.
Extrapolating from its success in dealing with day-to-day risks, many risk managers assess risk by way of averages, or what are more technically known as expected values.