FinTech Glossary

What is Expected Return

Expected return is the estimated gain or loss an investment is likely to generate over a specific period. It represents the average outcome based on different possible scenarios and their probabilities, rather than a guaranteed result.

Business Context

Expected return is used to evaluate whether an investment, project, or decision is likely to deliver sufficient value compared to its cost and risk. It helps compare multiple options and understand the trade-off between potential gains and uncertainty.

Businesses and investors rely on expected return when assessing new projects, capital investments, financial assets, or strategic initiatives. It provides a structured way to think about future outcomes, even when results are uncertain.

How Expected Return Works

Expected return is calculated by assigning probabilities to different possible outcomes and then averaging those outcomes.

Each possible return is multiplied by the likelihood of it occurring, and the results are added together.

In practice, expected return may be estimated using:

• Historical performance data
• Market assumptions and forecasts
• Scenario analysis
• Risk assessments

Because it is an estimate, actual returns may be higher or lower than expected.