6.2 The Return on an Investment
The Sources of Return
Return
Dividends
Capital gain
The Expected Return and The Required Return
Expected return
Required return
Assume Abdullah works for a mutual fund company.
Assume you are analyzing an expected return on stocks. The expected returns of these stocks under different economic conditions are shown in the table below:
Now analyze an expected return on a second stock:
The expected return on an investment includes both the expected income plus expected price appreciation.
The difference between the discounted rate and the maturity rate is the capital gain.