The return on an investment as estimated by an asset pricing model is calculated by taking the average of the probability distribution of all possible returns. For example, a model might state that an investment has a 10% chance of a 100% return and a 90% chance of a 50% return. The expected return is calculated as:
The expected return is calculated by multiplying the probability of each possible return scenario by its corresponding value and then adding up the products. The expected return metric – often denoted as “E(R)” – considers the potential return on an individual security or portfolio and the likelihood of each outcome.
Define N = Number of Payments, I/Y = Interest Rate, PV = Present Value, PMT = Payment, and FV = Future Value. These definitions correspond to the third row of keys on your calculator.
So, to calculate expected value, first multiply the probability of a positive outcome by the potential return. Say, an investment has a 60% chance of increasing in value by $10,000. The calculation would be: 0.6 x $10,000 = $6,000.
Then, press the Apps button, choose the Finance menu (or you may also press the 1 key), and then choose the TVM Solver (or you may also press the 1 key). You can then start entering the data as shown in the table below: You then just have to scroll to the FV line and press Alpha Enter in order to find the future value.
To find the expected value, E(X), or mean μ of a discrete random variable X, simply multiply each value of the random variable by its probability and add the products.
1) Press [2nd] [FORMAT]."DEC" is displayed, along with a value indicating the current decimal setting.2) Input the number of decimal places to be displayed (0 - 9) and press [ENTER].
Follow the steps provided below to ensure that all possible decimal places (up to 9) are displayed when performing calculations on the BA II PLUS and the BA II PLUS PROFESSIONAL financial calculators. 1) Press [2ND] [FORMAT].2) Press [9] [ENTER].3) Press [2ND] [QUIT].
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