How to Calculate Expected Return on Market?

Answer

To calculate the Expected Return on the Market, first, find the value of the the risk free rate of return. This is the return earned by investments in risk free securities. Obtain the value of the stock's market risk premium. This is the difference between the expected return of an investment minus the risk free rate of return. It tells how much extra the investor may be expected to earn over the original amount of the risk free return. Find information on beta, which gives the stock's sensitivity to changes in the market. Review the CAPM formula. It is r(i) = r(f) + B(E(rm) - r(f)). The variable r(i) is the return on the investment, r(f) is the risk free interest rate, B is beta, and E(rm) is the expected return on the market. The term E(rm) - r(f) is the market risk premium. Apply the formula to a company. Perform the calculations with a calculator or a spreadsheet. Assume a company has the following values: r(f) = 3.15 percent, Erm = 10 percent, and B = 0.15. Then the rate of return r(i) = 3.15 + 0.15 * (10 - 3.15) = 3.15 + 0.15 * 6.85 = 4.18 percent.
Q&A Related to "How to Calculate Expected Return on Market?"
1. Find the value of the risk free rate of return. This is the return earned by investments in risk free securities, and it normally equals the current yield to maturity of U.S. Treasury
http://www.ehow.com/how_12158124_calculate-expecte...
The site below may help...; Source(s):
http://uk.answers.yahoo.com/question/index?qid=200...
with a calculating machine.
http://wiki.answers.com/Q/How_can_you_calculate_th...
This question is not nearly as simple as it sounds. Firstly, not one can predict the price movement of gold or any other assets. The analysts on gold are consistently wrong. All assets
http://www.quora.com/What-average-percentage-of-re...
Explore this Topic
The market risk premium is calculated by the formula: Market risk premium = Expected market return - Risk free rate. It is defined as the expected return of the ...
A simple way to calculate the expected rate of return on an investment for a single period is by subtracting the initial investment from the final value of the ...
Market potential refers to the highest expected number of revenue from sales of a product by all suppliers in a market for a given period. It can be a useful tool ...
About -  Privacy -  Careers -  Ask Blog -  Mobile -  Help -  Feedback  -  Sitemap  © 2014 Ask.com