CHAPTER 13
Most important chapter
RISK, RETURN, and the SML
Expected returns:

Looking forward

Predicting

If a trial is done many times, what is the average outcome (50% chance of tossing tails)

Expected returns are based on the probabilities of possible outcomes.

In this context, "expected" means average if the process is repeated many times.

The "expected" return does not even have to be a possible return:
"Pi" = probability of outcome
"Ri" = amount
EX.
*Probabilities
must sum up to
one (100%), The
missing value
"???" =
1(0.3+0.5) = 0.2
*Probability = Pi
* C and T = Ri
(return)
Step 1