What is a security's expected return?

A security's expected return is defined as the average return anticipated from an investment over a specified period. This concept encompasses the range of potential returns that an investor might earn, weighted according to the probability of each return occurring. Expected return is fundamental in investment analysis because it considers various scenarios and helps investors make informed decisions based on the likelihood of different outcomes.

By assessing the expected return, investors can compare the potential profitability of different investments, taking into account both risk and reward. This provides a comprehensive understanding of what can realistically be anticipated from a security over time.

In contrast, the other choices do not accurately describe the expected return. For instance, while a low-risk investment may offer a predictable return, it does not encompass the broader notion of averaging returns over various scenarios. The idea of a guaranteed minimum return is inconsistent with the concept of expected return, as investments typically come with inherent risks that may render such guarantees unrealistic. Lastly, stating that expected return applies only to government bonds is too restrictive, as the approach is relevant to all types of investments, not just government securities.