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I am told that if I invest $20 in this Apple Stock, in one years time there is a:

  • 10% chance I'll get back $25
  • 10% chance I'll get back $20
  • 30% chance I'll get back $15
  • 50% chance I'll get back $10

So my what I'm calling my "Return on Investment" would be: $25 * .1 + $20 * .1 + $15 * .3 + $10 * .5 = $14

I'm assuming this is some sort of statistical calculation that I just did, but I'd like to know the name of this statistical process. (I would say something like amortization, but that's not right.)

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    You may call it "average expected return". zenwealth.com/businessfinanceonline/RR/ExpectedReturn.html – user66974 Feb 2 '16 at 20:43
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    @Josh61 Possibly, I think you answered it right there though "Probability Distribution" perhaps? – Jonathan Mee Feb 2 '16 at 20:54
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    @FumbleFingers Quite. Just as there are 1.15 children in an average family. – anemone Feb 2 '16 at 21:38
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    The method is a fundamental technique in probability theory and has application in many fields beyond finance. When I studied this it was described as the summation of the value of the outcomes multiplied by their probabilities but I don't recall ever hearing a specific name for it. – Al Maki Feb 2 '16 at 22:28
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    The non-technical term that applies to your example is "counting your chickens before they are hatched." – ab2 ReinstateMonicaNow Feb 2 '16 at 23:52
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The "return" you describe is usually called expected value (see also weighted average). For the process of determining it, I think no special term exists beyond the usual ones such as "calculating", "determining", "estimating", etc.

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    I was hoping that wasn't the case, but thanks for the confirmation. – Jonathan Mee Feb 2 '16 at 21:42

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