When using probable rates of return, you’ll need the additional data point of the expected probability of each outcome. Remember, the probability column must add up to 100%. Multiply the return by the probability and add the outcomes together to get the expected rate of return. Here’s an example of how this would look.
| Scenario | Return | Probability | Outcome |
|---|---|---|---|
| 1 | 14% | 30% | 0.042 |
| 2 | 2% | 10% | 0.0028 |
| 3 | 22% | 30% | 0.066 |
| 4 | -18% | 10% | -0.018 |
| 5 | -21% | 10% | 0.00441 |
| 100% | 0.09721 |
Using the formula above, in this hypothetical example, the expected rate of return is 9.7%.