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The expected return (or expected gain) on a financial investment is the expected value of its return (of the profit on the investment). It is a measure of the center of the distribution of the random variable that is the return. [1] It is calculated by using the following formula:
is the expected inflation rate g {\displaystyle g} is the real growth rate in earnings (note that by adding real growth and inflation, this is basically identical to just adding nominal growth) Δ S {\displaystyle \Delta S} is the changes in shares outstanding (i.e. increases in shares outstanding decrease expected returns)
Given a number of competing investment opportunities, investors are expected to put their capital to work in order to maximize the return. In other words, the cost of capital is the rate of return that capital could be expected to earn in the best alternative investment of equivalent risk; this is the opportunity cost of capital.
An investment’s “expected return” is a critical number, but in theory it is fairly simple: It is the total amount of money you can expect to gain or lose on an investment with a predictable ...
The Capital Market Line says that the return from a portfolio is the risk-free rate plus risk premium. Risk premium is the product of the market price of risk and the quantity of risk, and the risk is the standard deviation of the portfolio. The CML equation is : R P = I RF + (R M – I RF)σ P /σ M. where, R P = expected return of portfolio
The formula can be rearranged to find the expected return on an investment given a stated risk premium and risk-free rate. For example, if the investor in the example above required a risk premium of 9% then the expected return on the equity asset would have to be 12%.
The return, or the holding period return, can be calculated over a single period.The single period may last any length of time. The overall period may, however, instead be divided into contiguous subperiods. This means that there is more than one time period, each sub-period beginning at the point in time where the previous one ended. In such a case, where there are
An emergency fund should be liquid -- in an account that isn't at risk of significant fluctuation like the stock market. The tradeoff is that the value of liquid cash can be eroded by inflation.