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Expected return |
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Definition of Expected returnExpected returnThe return expected on a risky asset based on a probability distribution for the possible rates Expected ReturnThe total amount of money (return) an investor anticipates to receive from an investment.
Related Terms:Expected return on investmentThe return one can expect to earn on an investment. See: capital asset Expected return-beta relationshipImplication of the CAPM that security risk premiums will be Expected future returnThe return that is expected to be earned on an asset in the future. Also called the CARs (cumulative abnormal returns)a measure used in academic finance articles to measure the excess returns an investor would have received over a particular time period if he or she were invested in a particular stock. Base probability of lossThe probability of not achieving a portfolio expected return. Capital asset pricing model (CAPM)An economic theory that describes the relationship between risk and Cumulative abnormal return (CAR)Sum of the differences between the expected return on a stock and the Efficient diversificationThe organizing principle of modern portfolio theory, which maintains that any riskaverse Efficient frontierThe combinations of securities portfolios that maximize expected return for any level of Efficient portfolioA portfolio that provides the greatest expected return for a given level of risk (i.e. standard Exante returnThe expected return of a portfolio based on the expected returns of its component assets and Financial leverageUse of debt to increase the expected return on equity. Financial leverage is measured by Indifference curveThe graphical expression of a utility function, where the horizontal axis measures risk and Magic of diversificationThe effective reduction of risk (variance) of a portfolio, achieved without reduction Market capitalization rateexpected return on a security. The market-consensus estimate of the appropriate Markowitz efficient portfolioAlso called a mean-variance efficient portfolio, a portfolio that has the highest Mean-variance criterionThe selection of portfolios based on the means and variances of their returns. The Minimum-variance frontierGraph of the lowest possible portfolio variance that is attainable for a given Naive diversificationA strategy whereby an investor simply invests in a number of different assets and One-factor APTA special case of the arbitrage pricing theory that is derived from the one-factor model by Opportunity cost of capitalexpected return that is foregone by investing in a project rather than in Opportunity setThe possible expected return and standard deviation pairs of all portfolios that can be Portfolio opportunity setThe expected return/standard deviation pairs of all portfolios that can be Required returnThe minimum expected return you would require to be willing to purchase the asset, that is, Risk loverA person willing to accept lower expected returns on prospects with higher amounts of risk. Risk premium approachThe most common approach for tactical asset allocation to determine the relative Security market lineLine representing the relationship between expected return and market risk. Systematic risk principleOnly the systematic portion of risk matters in large, well-diversified portfolios. Utility functionA mathematical expression that assigns a value to all possible choices. In portfolio theory the Weighted average cost of capitalexpected return on a portfolio of all the firm's securities. Used as a hurdle Efficient frontierA graph representing a set of portfolios that maximizes Cost of capitalThe blended cost of a company’s currently outstanding debt instruments risk premiumexpected return in excess of risk-free return as compensation for risk. security market lineRelationship between expected return and beta. Abnormal returnsPart of the return that is not due to systematic influences (market wide influences). In After-tax real rate of returnMoney after-tax rate of return minus the inflation rate. Annualized holding period returnThe annual rate of return that when compounded t times, would have Arithmetic average (mean) rate of returnArithmetic mean return. Arithmetic mean returnAn average of the subperiod returns, calculated by summing the subperiod returns Average accounting returnThe average project earnings after taxes and depreciation divided by the average Average rate of return (ARR)The ratio of the average cash inflow to the amount invested. Dollar returnThe return realized on a portfolio for any evaluation period, including (1) the change in market Dollar-weighted rate of returnAlso called the internal rate of return, the interest rate that will make the Ex post returnRelated: Holding period return Excess return on the market portfolioThe difference between the return on the market portfolio and the Excess returnsAlso called abnormal returns, returns in excess of those required by some asset pricing model. Expected future cash flowsProjected future cash flows associated with an asset of decision. Expected valueThe weighted average of a probability distribution. Expected value of perfect informationThe expected value if the future uncertain outcomes could be known Geometric mean returnAlso called the time weighted rate of return, a measure of the compounded rate of Holding period returnThe rate of return over a given period. Horizon returnTotal return over a given horizon. Incremental internal rate of returnIRR on the incremental investment from choosing a large project Internal rate of returnDollar-weighted rate of return. Discount rate at which net present value (NPV) Leveraged required returnThe required return on an investment when the investment is financed partially by debt. Market returnThe return on the market portfolio. Money rate of returnAnnual money return as a percentage of asset value. Multiple rates of returnMore than one rate of return from the same project that make the net present value Portfolio internal rate of returnThe rate of return computed by first determining the cash flows for all the Rate of return ratiosRatios that are designed to measure the profitability of the firm in relation to various Realized returnThe return that is actually earned over a given time period. ReturnThe change in the value of a portfolio over an evaluation period, including any distributions made Return on assets (ROA)Indicator of profitability. Determined by dividing net income for the past 12 months Return on equity (ROE)Indicator of profitability. Determined by dividing net income for the past 12 Return on investment (ROI)Generally, book income as a proportion of net book value. Return on total assetsThe ratio of earnings available to common stockholders to total assets. Return-to-maturity expectationsA variant of pure expectations theory which suggests that the return that an Riskless rate of returnThe rate earned on a riskless asset. Safety-net returnThe minimum available return that will trigger an immunization strategy in a contingent Subperiod returnThe return of a portfolio over a shorter period of time than the evaluation period. T-period holding-period returnThe percentage return over the T-year period an investment lasts. Time-weighted rate of returnRelated: Geometric mean return. Total dollar returnThe dollar return on a nondollar investment, which includes the sum of any Total returnIn performance measurement, the actual rate of return realized over some evaluation period. In Unleveraged required returnThe required return on an investment when the investment is financed entirely RATE OF RETURN ON STOCKHOLDERS’ EQUITYThe percentage return or profit that management made on each dollar stockholders invested in a company. Here’s how you figure it: RATE OF RETURN ON TOTAL ASSETSThe percentage return or profit that management made on each dollar of assets. The formula is: RETURN ON INVESTMENT (ROI)In its most basic form, the rate of return equals net income divided by the amount of money invested. It can be applied to a particular product or piece of equipment, or to a business as a whole. Accounting rate of return (ARR)A method of investment appraisal that measures Internal rate of return (IRR)A discounted cash flow technique used for investment appraisal that calculates the effective cost of capital that produces a net present value of zero from a series of future cash flows and an Return on capital employed (ROCE)The operating profit before interest and tax as a percentage of the total shareholders’ funds plus Return on investment (ROI)The net profit after tax as a percentage of the shareholders’ investment in the business. Target rate of return pricingA method of pricing that estimates the desired return on investment to be achieved from the Purchase returnsA contra account that reduces purchases by the amount of items purchased that were subsequently returned. Sales returnsA contra account that offsets revenue. It represents the amount of sales made that were later returned. internal rate of return (IRR)The precise discount rate that makes the return on assets (ROA)Although there is no single uniform practice for return on equity (ROE)This key ratio, expressed as a percent, equals net return on investment (ROI)A very general concept that refers to some return on salesThis ratio equals net income divided by sales revenue. Expected ValueThe value of the possible outcomes of a variable weighted by the Internal Rate of Return (IRR)The discount rate that equates the present value of the net cash Return on Common Equity RatioA measure of the percentage return earned on the value of the Return on Total Assets RatioA measure of the percentage return earned on the value of the accounting rate of return (ARR)the rate of earnings obtained on the average capital investment over the life of a capital project; computed as average annual profits divided by average investment; not based on cash flow expected capacitya short-run concept that represents the expected standardstandard set at a level that reflects what internal rate of return (IRR)the expected or actual rate of
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