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You can arrive at this rate by calculating the arithmetic mean average of a series of...

You can arrive at this rate by calculating the arithmetic mean average of a series of historical returns (rates). a. the real rate b. the nominal rate c. the required rate d the expected rate e risk free rate

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Answer #1

The answer is Option D(The Expected Rate)

The expected rate of Return is a predicted or estimated return and may or may not occur. Its calculation is based upon the past performance in the market. It is however not guaranteed. For example, If a Stock M has returns of 11%, 12% and 13% in the past three years. Then, the Expected Return of Stock M is calculated as follows:

ie. (By using Sum of returns/ No. of years)

    

ie. 0.12 or 12%

This 12% is based upon the average of past three years.

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