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What is expected return and realized return?

What's the difference between expected return and realized return?


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Expected return means the return investors expect to realize if an investment is made. The expectation is based on the return of a risk free investment, such as a U.S. Treasury note, plus a risk premium. In case of a higher risk, a higher return is expected to compensate for the increased risk.

Realized return is the return actually earned by buying an asset. In efficient capital markets, expected and required returns are theoretically equal because everybody is well-informed, prices are always fair and perfectly represent the risk. But markets are usually not perfect, and unexpected events occur very often. Realized returns are not connected to expected returns.
Jun 16th, 2011 at 12:05 PM
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the anticipated return expected by investor over some future holding period is called expected return actual return on an investment for some previous period of time is called realized return
Feb 25th, 2014 at 3:46 AM
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