Question

How is Expected Return different from Actual/Historical Return? Provide examples.

How is Expected Return different from Actual/Historical Return? Provide examples.


Homework Answers

Answer #1

Expected return is what investors and trades anticipate to get from their investment in instruments. This rate can vary based on the expectations of different investors. It is subjective. This is estimated using forward growth numbers

Actual/ Historical return is a fixed rate of return that the company has given in the padt. This is not based on expectation and will not change because of investor expectations. It is objective. This is calculated on past performance.

Example-

You had purchased a stock for $100 and sold it for $120. Here, $120-$100/$100 = 20% is your acrual return on the stock.

If you again bought this stock today at $130 and expect it to reach $150, i.e $150-$130/$150 = 13.33% is your expected return on the stock.

Let me know in the comment section in case of any doubt.

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