where i indicates each known return and its respective probability in the series
the expected return is usually based on historical data and is therefore not guaranteed into the future however it does often set reasonable expectations therefore the expected return figure can be thought of as a long term weighted average of historical returns in the formulation above for instance the 5 expected return may never be realized in the future as the investment is inherently subject to systematic and unsystematic risks systematic risk is the danger to a market sector or the entire market whereas unsystematic risk applies to a specific company or industry calculating expected return