Now the expected return is more like a forecast and for that ideally we use CAPM model
Which is the risk free rate +beta(stock volatility)*Market premium
Market premium is the overall extra return one gets above the risk free rate. By solving which you get an expected rate of return.
I agree with S, however I'm assuming since this is finite math you aren't getting into CAPM? They probably just give you a set of probabilities and respective returns in different economic conditions, then you just have to multiply them to and add it up to get your expected return. Don't over-think it though, expected is what we expect but don't really know, and actual is backward looking.
The term is expected risk premium, sometimes called market risk premium. There is no market premium. See my source.
well said .S.
I'm doing this project in Finite math that has to do with investments. I know how to find APR and APY and I know the difference. I'm stuck on a problem where I'm investing in savings, CD's, and ETF's, and it's asking to include the expected rate and actual rate. I have asked several people and searched all over the internet and can't seem to find an answer.
