Expected Return Calculator
Averaging Across What Might Happen, Not What Already Did
Expected return differs from historical return in one key way: instead of averaging past results, it averages hypothetical future outcomes, each weighted by how likely you believe it is to occur. It's the standard tool for evaluating an investment when you have a view on probability-weighted scenarios — a recession case, a base case, a boom case — rather than a track record to look back on.
The Formula
Each possible outcome's return is multiplied by its assigned probability, and the results are summed. Probabilities entered as raw numbers are automatically normalized to sum to 100% before the calculation.
Where This Is Used
- Scenario analysis — modeling how an investment performs across a small number of discrete economic scenarios, each with an assigned likelihood.
- Decision-making under uncertainty — comparing two opportunities by their expected return, even when neither has a track record yet.
- Options and derivatives — expected value calculations underpin much of how probabilistic payoffs are priced.
Worked Example
Three scenarios: a 20% chance of a -10% return, a 50% chance of an 8% return, and a 30% chance of a 20% return.
| Scenario | Probability | Return | Contribution |
|---|---|---|---|
| Downturn | 20% | -10% | -2.0% |
| Base Case | 50% | 8% | 4.0% |
| Boom | 30% | 20% | 6.0% |
| Expected Return | 8.0% | ||
Expected return is a probability-weighted average, not a guarantee — none of the three individual scenarios here actually produces an 8% outcome.
How to Use This Calculator
- Enter Scenario Probabilities as a comma-separated list (e.g. 20,50,30) — these can be percentages or any proportional values.
- Enter the matching Scenario Returns (%) in the same order, comma-separated.
- Select Calculate to see each scenario's normalized probability, its contribution, and the overall expected return.
Related Calculations
Working with actual portfolio weights instead of hypothetical scenarios? Use the Portfolio Return Calculator, or measure the spread of outcomes with the Risk Calculator.