Page 18 - DBP5043

MEASUREMENT OF RETURN

Return can be expressed either as percentage or in RM value. But it is

best to present return as percentage because it would give a better
understanding of how much income is obtained from each RM that is
invested.
- Typically, the indicator most often used to measure the level of
return is by using the expected return R

Computing Expected Return ( )

Generally, expected return can be defined as the average results based on
all probability and possible yield or rate of return expected from an asset.

R
Expected rate of return ( ) = ΣRP
R = the possible return

P = probability to occur

Example 1:

Economic Probability Rate of Rate of Rate of
conditions (%) Return Return on Return on
on Stock A Stock B Stock C
(%) (%) (%)

Growing 20 14 25 36

Stable 30 12 20 30

Down 50 10 15 28

Based on the example above, you are required to calculate the expected
rate of return for investments in Stock A, B and C.

R A =

R B =

R C =