Answer :
Consider two projects, a and b. Project B is riskier than project A. Therefore, project B should have a lower price, a higher expected return, and a higher risk premium than project A.
The amount of profit or loss an investor might anticipate on an investment is known as the expected rate of return. The probability of each possible result occurring is multiplied by the outcome's total to determine the expected rate of return.
The expected return is a probability measurement used to show the likelihood and expected return of a certain investment to generate a profit. To help the investor understand the potential risks and benefits, the anticipated return on investment calculation is used.
A security or asset is not the only one to which the expected return is applicable. It may be developed further to examine a portfolio with several investments. The total anticipated return of the portfolio is a weighted average of the expected returns of its components if the expected return for each investment is known.
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