Expected Return

The expected return of an investment is the average anticipated profit or loss an investor can expect from an investment. The expected return of an investment is calculated by multiplying all of the potential outcomes by their probability of them occurring and then summing the results. The expected return of an investment is a long-term weighted average of historical rates of return. Expected return is utilized by investors to predict the most likely profit or loss from an investment. However, many assets are not stable enough to provide insightful expected return values based on historical data. Thus, expected returns are not guaranteed, although expected return calculations are widely used in business operations, modern portfolio theory, and the Black-Scholes options pricing model.