EXPECTED RETURN

The expected return on a risky asset based on a probability distribution for the possible rates of return. Expected return equals some risk free rate (generally the prevailing U.S. Treasury note or bond rate) plus a risk premium (the difference between the historic market return , based upon a well diversified index such as the S&P 500 and the historic U.S. Treasury bond) multiplied by the assets beta . The conditional expected return varies through time as a function of current market information.