What is expected to be a return rate?

The expected return rate is a value used in economic and financial discussions on investment to indicate a statistically likely return on investment. This is determined by using a number of possible return rates, along with the probability that each will occur. These numbers are then diameter to determine the rate that is most likely to occur with this particular investment. The expected return rate should not be confused with a guaranteed level of return, which is not based on the average of various options and instead is guaranteed for a specific investment.

The expected return rate is often provided for investment in the stock market and other places where return cannot be guaranteed. There is always a degree of risk to perform this type of investment because it is only an estimate based on the most likely scenario. Unexpected and unforeseen events can drastically affect and lead to unpredictable profits or loss. WhenThose who communicate the probable return rate of investment as a scope between two values ​​can usually provide the expected return rate.

Calculation of this for a particular investment is quite simple, although it requires a lot of information about the investment. Some need to know the most likely level of return as well as statistical probability of these yields that may require a combination of research and prediction. These numbers are then diameter together to create a rate that is most likely.

For example, a specific investment in stocks can have a 10% chance of losing 10%, 30% chance to increase by 10% and 60% chance to increase by 20%. Chances and each potential return are multiplied together, which means that 0.1 and -0.1 multiplied for the first option, 0.3 and 0.1 for the second and 0.6A 0.2, multiplied to the last; that produces -0.01, 0.03 and 0.12. These values ​​then add up for 0.14 nobo 14%. This means that the expected return on this investment is 14% of profit.

The expected return rate should not be confused with a guaranteed level of return. The investment with a guaranteed rate has an estimated rate that will be paid, such as a bond or similar investment that has a preset rate for a certain period of time. This type of return is financially guaranteed by a person or agency requiring an investment.