Expected Return Formula Calculator

Expected Return Formula:

\[ ER = \sum (w_i \times r_i) \]

Expected Portfolio Return (ER):

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1. What is the Expected Return Formula?

The Expected Return Formula calculates the weighted average return of a portfolio based on the allocation weights and expected returns of individual assets. It helps investors estimate the potential performance of their investment portfolio.

2. How Does the Calculator Work?

The calculator uses the Expected Return formula:

\[ ER = \sum (w_i \times r_i) \]

Where:

\( ER \) — Expected portfolio return (%)
\( w_i \) — Weight of asset i in the portfolio (decimal)
\( r_i \) — Expected return of asset i (%)
\( \sum \) — Summation across all assets

Explanation: The formula multiplies each asset's weight by its expected return, then sums these products to get the overall portfolio expected return.

3. Importance of Expected Return Calculation

Details: Calculating expected return is essential for portfolio optimization, risk management, and investment decision-making. It helps investors compare different portfolio strategies and set realistic performance expectations.

4. Using the Calculator

Tips: Enter the number of assets in your portfolio, then for each asset provide the weight (as a decimal between 0 and 1) and expected return (as a percentage). Ensure weights sum to 1 for accurate results.

5. Frequently Asked Questions (FAQ)

Q1: What if my weights don't sum to 1?
A: The calculator will still compute the result, but for accurate portfolio analysis, weights should sum to 1 (100% allocation).

Q2: How do I estimate expected returns for assets?
A: Use historical averages, analyst forecasts, or risk-adjusted models like CAPM. Past performance doesn't guarantee future results.

Q3: Does this account for risk?
A: No, this only calculates expected return. For risk assessment, calculate portfolio variance or standard deviation.

Q4: Can I use this for any asset type?
A: Yes, the formula works for stocks, bonds, mutual funds, or any investment with measurable expected returns.

Q5: How often should I recalculate expected return?
A: Recalculate when portfolio allocations change significantly or when market conditions alter expected returns.