Expected Return Calculator

Expected return is the anticipated profit or loss from an investment over a specific period. Calculated using historical data, CAPM model, or scenario analysis. Represents the weighted average of all possible returns based on their probabilities.

CAPM formula: Expected Return = Risk-free Rate + Beta × (Market Return - Risk-free Rate). Beta measures stock's sensitivity to market movements. Market return is typically S&P 500 historical average. Risk-free rate uses Treasury bonds.

Expected return is a forecast based on analysis and assumptions. Actual return is what really happens. Expected return helps with planning and comparison, but markets are unpredictable. Use expected return for portfolio allocation, not guaranteed outcomes.

Historical returns show past performance - useful for understanding patterns but don't guarantee future results. Forward-looking methods like CAPM and scenario analysis incorporate current market conditions and expectations. Combine both for better forecasting.

Portfolio expected return = Sum of (Asset Weight × Asset Expected Return). For 60% stocks (10% expected) + 40% bonds (4% expected) = 0.6 × 10% + 0.4 × 4% = 7.6%. Diversification affects risk but not expected return calculation.

Based on assumptions that may not hold. Historical data may not predict future. Market conditions change. Black swan events not captured. Use as guidance, not certainty. Always consider risk alongside expected return.