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Expected Return Calculator

Estimate the average return of an investment portfolio based on asset weights and projected return probabilities.

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Calculation Parameters

Specify your inputs below.

Calculated Result

Market Risk Premium 5.50%
Expected Return (CAPM) 10.60%
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Expert Tip

A beta above 1.0 indicates that the asset is more volatile than the general stock market, requiring higher expected returns.

How this Calculator Works

This calculator estimates the expected return of a financial asset or portfolio by factoring in the probability of different return scenarios. It helps investors assess risk and make asset allocation decisions. Portfolio managers use it to build balanced portfolios.

Formula & Methodology

Expected Return = Sum [ Probability_i * Return_i ] - Probability_i is the likelihood of scenario i occurring (sum must equal 100%). - Return_i is the projected rate of return under scenario i.

Step-by-Step Calculation Example

Here is a step-by-step example showing how the calculations are performed:

An investor forecasts a stock's performance: 30% probability of a 15% gain, 50% probability of an 8% gain, and 20% probability of a 5% loss. 1. Multiply probability by return for each scenario: - Scenario 1: 0.30 * 15 = 4.5. - Scenario 2: 0.50 * 8 = 4.0. - Scenario 3: 0.20 * (-5) = -1.0. 2. Sum the weighted returns: 4.5 + 4.0 - 1.0 = 7.5%. Result: The expected return of the stock is 7.5%.

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Detailed Insights & Expert Guide

ℹ️ About this Calculation

This investment analytics calculator evaluates portfolio yield, compounding growth, risk-adjusted returns, present/future asset valuations, and capital growth metrics based on CFA and modern portfolio theory (MPT) principles.

Variable Glossary

Input

Investment Parameters

Initial principal, periodic contribution, interest rate, discount factor, holding period, or asset price inputs.

Parameter

Performance Metrics

Compound Annual Growth Rate (CAGR %), Net Present Value (NPV), Internal Rate of Return (IRR), or Sharpe ratio.

How to Calculate Step-by-Step

1

Step 1

Enter your initial investment capital, asset purchase prices, or cash flow streams.

2

Step 2

Set compounding frequency, discount rate, or benchmark risk-free rate factors.

3

Step 3

Review calculated total return value, annualized growth %, or risk-adjusted alpha/beta statistics.

FAQ

How does compounding frequency impact investment returns?
More frequent compounding (e.g. monthly or daily vs. annually) generates higher effective annual yields (APY) because interest is calculated on accumulated interest earlier in the period.
What is the difference between Sharpe Ratio and Sortino Ratio?
The Sharpe ratio divides excess return by total standard deviation (both upside and downside volatility), whereas the Sortino ratio divides excess return by downside deviation only.
Should investment calculators replace professional wealth management?
No. Investment calculators model financial mathematics under assumed growth rates. Actual market performance fluctuates, so consult a licensed financial planner (CFP) or RIA for personalized advice.