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Finance Dictionary and Glossary of Investment Terms
expected return
Definition 1.
Estimation of the value of an investment, including the change in price and any payments ordividends, calculated from a probability distribution curve of all possible rates of return. In general, if an asset is risky, the expected return will be the risk-free rate of return plus a certain risk premium. also called expected value.
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Definition 2.
The average of a probability distribution of possible returns.
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Definition 3.
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 assets beta. The conditional expected return varies through time as a function of current market information.
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