Rate of Return versus. Expected Rate of Return
Explain the difference between required rate of return and expected rate of return. If they are different at a specific point in time, what does it mean?
2. What is the difference between an expected return and a total holding period return?
3. How does investing in more than one asset reduce risk through diversification?
Answer preview
The required rate of return is the least level of return expected that an individual presumes to gain from the project invested. It is the minimum amount rate of return an investor expects to earn from a risky project (Easton, 2004). The expected rate of return is the loss or profit that an investor speculated to get from the project invested. In case the expected rate of return is lower as compared to the required rate, it shows that the investor has incurred a loss. while, when the expected rate of return is higher than the required, then this is clear that an investor made a profit.
2.
The expected return is the gain or loss an individual expects to earn from investing on a project. For instance, when a person has invested…
(300 words)