1. What is Expected Return on Stock B?

The expected return on Stock B is the weighted average of all possible returns, with weights being the probabilities of each outcome. It represents the mean value of the probability distribution of possible returns.

2. How Does the Calculator Work?

The calculator uses the expected return formula:

Where:

• \( E[R_b] \) — Expected return on Stock B
• \( p \) — Probability of each scenario
• \( r_b \) — Return in each scenario

Explanation: The formula multiplies each possible return by its probability and sums all these products to get the expected return.

3. Importance of Expected Return Calculation

Details: Calculating expected return helps investors assess potential investments, compare different stocks, and make informed decisions based on risk-return tradeoffs.

4. Using the Calculator

Tips: Enter probabilities (must sum to 1 or less) and corresponding returns for each scenario. At least two scenarios are required.

5. Frequently Asked Questions (FAQ)

Q1: What if probabilities don't sum to exactly 1?
A: The calculator allows sums ≤1, treating any remaining probability as a 0% return scenario.

Q2: How many scenarios should I include?
A: Include all significant possible outcomes. Typically 3-5 scenarios capture most realistic situations.

Q3: What's the difference between expected and required return?
A: Expected return is what you anticipate; required return is what you demand based on risk.

Q4: Can I use this for portfolios?
A: This calculates for a single stock. Portfolio expected return would weight individual stock returns.

Q5: How accurate is expected return for prediction?
A: It's a statistical expectation - actual returns will vary around this mean value.