What is the difference between the expected rate of return and the realized rate of return as described in the chapter on Stock Valuation?

The expected rate of return is the anticipated average return on an investment, calculated by weighting possible returns by their probabilities. In contrast, the realized rate of return is the actual return earned on the investment, which can differ from the expected rate due to the uncertainty of investment outcomes.

The expected rate of return represents what an investor forecasts to earn based on the probabilities of various potential returns. It is a theoretical measure that helps in evaluating investment opportunities. The realized rate of return, however, is the actual return that an investor receives after the investment period has ended. This can vary significantly from the expected return due to market fluctuations and other factors affecting investment performance.