what is the expected return of the following investment r is 4 and investment is 30,000 course hero

What is the expected return for a portfolio containing multiple investments?

The expected return for a portfolio containing multiple investments is the weighted average of the expected return of each of the investments.

What is the expected return on investment?

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.

What is the probable long-term average return for investment a?

Therefore, the probable long-term average return for Investment A is 6.5%. Calculating expected return is not limited to calculations for a single investment. It can also be calculated for a portfolio.

Why 5% expected return may never be realized?

In the formulation above, for instance, the 5% expected return may never be realized in the future, as the investment is inherently subject to systematic and unsystematic risks. Systematic risk is the danger to a market sector or the entire market, whereas unsystematic risk applies to a specific company or industry.

What is expected return?

Expected return and standard deviation are two statistical measures that can be used to analyze a portfolio.

What is standard deviation in portfolio?

Standard deviation of a portfolio, on the other hand, measures the amount that the returns deviate from its mean, making it a proxy for the portfolio's risk. Expected return is not absolute, as it is a projection and not a realized return.

Is expected return based on historical data?

The expected return is usually based on historical data and is therefore not guaranteed into the future; however, it does often set reasonable expectations. Therefore, the expected return figure can be thought of as a long-term weighted average of historical returns .

Is expected return dangerous?

Limitations of Expected Return. To make investment decisions solely on expected return calculations can be quite naïve and dangerous. Before making any investment decisions, one should always review the risk characteristics of investment opportunities to determine if the investments align with their portfolio goals.

What is expected return?

The expected return of an investment is the rate of return an investor can reasonably expect, based on historical performance. You can use an expected-return formula to estimate the profit or loss on a specific stock or fund.

Why is expected return important?

Expected return can be an effective tool for estimating your potential profits and losses on a particular investment. Before diving in, it’s important to understand the pros and cons. Pros. Helps an investor estimate their portfolio’s return. Can help guide an investor’s asset allocation.

Is expected return based on historical performance?

The expected return is based entirely on historical performance. There’s no guarantee that future returns will compare. It also doesn’t take into account the risk of each investment. The expected return of an asset shouldn’t be the only factor you consider when deciding to invest.

Can you use expected and required return in tandem?

You can use the required return and expected return in tandem. When you know the required rate of return for an investment , you can use the expected return to decide if it’s worth your while.

Why is it important to understand the concept of a portfolio's expected to return?

It is important to understand the concept of a portfolio’s expected to return as it is used by investors to anticipate the profit or loss on an investment. Based on the expected return formula, an investor can decide whether to invest in an asset based on the given probable returns.

How to calculate expected return?

The formula for expected return for investment with different probable returns can be calculated by using the following steps: 1 Firstly, the value of an investment at the start of the period has to be determined. 2 Next, the value of the investment at the end of the period has to be assessed. However, there can be several probable values of the asset, and as such, the asset price or value has to be assessed along with the probability of the same. 3 Now, the return at each probability has to be calculated based on the asset value at the beginning and at the end of the period. 4 Finally, the expected return of an investment with different probable returns is calculated as the sum product of each probable return and corresponding probability as given below –#N#Expected return = (p1 * r1) + (p2 * r2) + ………… + (pn * rn)