Education Technology

# Knowledge Base

## Solution 28070: Calculating the Expected Value of a Return Using a BAII Plus™ Family Financial Calculator.

### How do I calculate expected value of a return on the BAII Plus family financial calculators?

The example below will demonstrate how to calculate expected value of a return using the BAII Plus family financial calculators.

Expected Value:

The weighted average of a probability distribution. Also known as the mean value.

Expected Return:

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:

Expected Return = 0.1 (1) + 0.9 (0.5) = 0.55 = 55%.

On the calculator:

1) Press [1] [0] [%] [X] [1] [0] [0] [%] .
2) Press [=] [STO] [1].
3) Press [9] [0] [%] [X] [5] [0] [%].
4) Press [=] [STO] [2].
5) Press [RCL] [1] [+] [RCL] [2] [=].

The answer is .55 in decimal format or 55% in percentage format.

Please Note: It is important to note that there is no guarantee that the expected rate of return and the actual return will be the same.