Question

which of the following statements is​ false?

A. The realized return is the total return we earn from dividends and capital​ gains, expressed as a percentage of the initial stock price.

B. The expected return is the return that actually occurs over a particular time period.

C. The average annual return of an investment during some historical period is simply the average of the realized returns for each year.

D. If you hold the stock beyond the date of the first​ dividend, then to compute your return you must specify how you invest any dividends you receive in the interim.

Answer 1

The answer is “B” - The expected return is the return that actually occurs over a particular time period.

Explanation: Expected return is not the actual return. In fact expected return is the anticipated return in the form of profit (or loss) that is being anticipated by the investor. It is not actual but is potential. Take a hypothetical example. Suppose you invest in stocks of GE. There is a 50% chance of getting a 20% return and a 50% chance of losing 6%. Thus expected return = 0.5*20% + 0.5*(-6%)

= 7%