What is the expected return on an investment portfolio?

To illustrate the expected return for an investment portfolio, let’s assume the portfolio is comprised of investments in three assets – X, Y, and Z. $2,000 is invested in X, $5,000 invested in Y, and $3,000 is invested in Z. Assume that the expected returns for X, Y, and Z have been calculated and found to be 15%, 10%, and 20%, respectively.

How is the expected return of a stock calculated?

Thus, an investor might shy away from stocks with high standard deviations from their average return, even if their calculations show the investment to offer an excellent average return. It’s also important to keep in mind that expected return is calculated based on a stock’s past performance.

What is the purpose of the expected return?

Expected return is simply a measure of probabilities intended to show the likelihood that a given investment will generate a positive return, and what the likely return will be. The purpose of calculating the expected return on an investment is to provide an investor with an idea of probable profit vs risk.

How is standard deviation related to expected return?

Standard deviation represents the level of variance that occurs from the average. The concept of expected return is part of the overall process of evaluating a potential investment.

Which is the summation of the portfolio deviation from the expected return?

D. The summation of the return deviation from the portfolio expected return for each economic state must equal zero. Consider a portfolio comprised of four risky securities. Assume the economy has three states with varying probabilities of occurrence. Which one of the following will guarantee that the portfolio variance will equal zero?

Where do the probabilities of an investment come from?

The probabilities of each potential return outcome are derived from studying historical data on previous returns of the investment asset being evaluated. The probabilities stated, in this case, might be derived from studying the performance of the asset over the previous 10 years.

How often do you have to contribute to your investments?

Some people have their investments automatically deducted from their income. Depending on your pay schedule, that could mean monthly or biweekly contributions (if you get paid every other week). A lot of us, though, only manage to contribute to our investments once a year.