Expected return: Understanding a Probability-Weighted Return
Expected return averages scenario returns using the probabilities you assign. It summarizes the scenario set but may be a number that none of the individual outcomes actually delivers.
Use the Expected return Calculator to enter your own figures and compare the result with the worked example below.
Expected return formula
E[R] = Σ(probability_i×return_i)
Worked example
| Item | Example value |
|---|---|
| Scenario probabilities (%) | 25,50,25 |
| Scenario returns (%) | -10,5,20 |
| Expected return | 5% |
These are illustrative inputs, not current prices, rates or recommended targets. Where a currency is shown, keep all comparable money amounts in the same currency; conversion examples identify the two sides separately.
How to interpret the result
Probabilities must describe a coherent set of outcomes. An average can conceal losses and does not establish that the assumptions are realistic.
Related calculations
Method and further reading
The example follows the FinMathly calculator method. For broader background, see Investor.gov: Introduction to investing. The background resource may use jurisdiction-specific terms; it does not replace the assumptions of this calculator.
Featured photograph: Pexels.