Expected Return Template
This expected return template will demonstrate the calculation of expected return for a single investment and for a portfolio.
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The expected return of an investment is the expected value of the probability distribution of possible returns it can provide to investors. The return on the investment is an unknown variable that has different values associated with different probabilities. Expected return is calculated by multiplying potential outcomes (returns) by the chances of each outcome occurring, and then calculating the sum of those results.
The purpose of calculating expected return for an investment is to provide an investor with an idea of the probable return from an investment that carries some level of risk, such as a stock or mutual fund. This gives the investor a basis for comparison with the risk-free rate of return, as well as with the eventual actual return that the investor receives. The interest rate on 3-month U.S. Treasury billsTreasury Bills (T-Bills)Treasury Bills (T-Bills) are a short-term financial instrument that is issued by the U.S. Treasury with maturity periods ranging from a few days to 52 weeks. They are considered the safest debts since they are backed up by the full faith of the Treasury Department of the United States Government. When an investor buys is often used to represent the risk-free rate of return.
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