# Chapter Summaries

# 7.1 Calculate realized and expected rates of return and risk. (pgs. 194–202)

# Summary:

We refer to the actual rate of return earned on an investment as the *realized rate of return*. This can be expressed as a percentage or as a cash amount gained or lost on the investment. But because investment returns are uncertain, we must speak in terms of expected returns. The *expected rate of return* is the rate we anticipate earning on an investment and is the rate relied on when evaluating a particular investment opportunity. We can calculate the expected rate of return using Equation (7–3):

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