expected return

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The expected return (or expected gain) on a
financial investment Investment is the dedication of money to purchase of an asset to attain an increase in value over a period of time. Investment requires a sacrifice of some present asset, such as time, money, or effort. In finance, the purpose of investing i ...
is the expected value of its
return Return may refer to: In business, economics, and finance * Return on investment (ROI), the financial gain after an expense. * Rate of return, the financial term for the profit or loss derived from an investment * Tax return, a blank document or t ...
(of the profit on the investment). It is a measure of the center of the distribution of the random variable that is the return. It is calculated by using the following formula: : where :: $R_$ is the return in scenario $i$; ::$P_$ is the probability for the return $R_$ in scenario $i$; and ::$n$ is the number of scenarios. The expected
rate of return In finance, return is a profit on an investment. It comprises any change in value of the investment, and/or cash flows (or securities, or other investments) which the investor receives from that investment, such as interest payments, coupons, cas ...
is the expected return per currency unit (e.g., dollar) invested. It is computed as the expected return divided by the amount invested. The
required rate of return The discounted cash flow (DCF) analysis is a method in finance of valuing a security, project, company, or asset using the concepts of the time value of money. Discounted cash flow analysis is widely used in investment finance, real estate devel ...
is what an investor would require to be compensated for the risk borne by holding the asset; "expected return" is often used in this sense, as opposed to the more formal, mathematical, sense above.

# Continuous scenarios

In
economics Economics () is the social science that studies the production, distribution, and consumption of goods and services. Economics focuses on the behaviour and interactions of economic agents and how economies work. Microeconomics analyzes ...
and finance, it is more likely that the set of possible outcomes is continuous (any numerical value between 0 and infinity). In this case, simplifying assumptions are made about the
continuous distribution In probability theory and statistics, a probability distribution is the mathematical function that gives the probabilities of occurrence of different possible outcomes for an experiment. It is a mathematical description of a random phenomenon i ...
of possible outcomes.