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Detailed explanation-1: -The expected return is the amount of profit or loss an investor can anticipate receiving on an investment. An expected return is calculated by multiplying potential outcomes by the odds of them occurring and then totaling these results. Expected returns cannot be guaranteed.
Detailed explanation-2: -Realized return refers to a return achieved in the past, and expected return refers to an anticipated return over a future period. A required return is the minimum level of expected return that an investor requires to invest in the asset over a specified period, given the asset’s riskiness.
Detailed explanation-3: -The Capital Asset Pricing Model (CAPM) is a model that describes the relationship between the expected return and risk of investing in a security. It shows that the expected return on a security is equal to the risk-free return plus a risk premium, which is based on the beta of that security.
Detailed explanation-4: -The accounting rate of return (ARR) formula is helpful in determining the annual percentage rate of return of a project. ARR is calculated as average annual profit / initial investment. ARR is commonly used when considering multiple projects, as it provides the expected rate of return from each project.