return The expected return on a riskyasset, given a probability distribution for the possible rates of return. Expected return equals some risk-free rate (generally the prevailing U.S. Treasurynote or bond rate) plus a risk premium (the difference between the historic market return, based upon a well diversified index such as the S&P 500 and the historic U.S. Treasury bond) multiplied by the asset'sbeta. The conditional expected return varies through time as a function of current market information. Expected return-beta relationship Implication of the CAPM that securityrisk premiums will be proportional to beta. Expected return on investment The return one can expect to earn on an investment. See: Capital asset pricing model. Expected Spot Rate The exchange rate between two currencies that is anticipated to prevail in the spot market on a given future date. It differs from the current spot rate primarily by the extent to which inflation expectations in the two currencies differ. Expected value The weighted average of a probability distribution. Also known as the mean value. Expected value of perfect information The expected value if the future uncertain outcomes could be known minus the expected value with no additional information. Expense ratio The percentage of the assets that are spent to run a mutual fund (as of the last annual statement). This includes expenses such as management and advisory fees, overhead costs, and 12b-1 (distribution and advertising) fees. The expense ratio does not include brokerage costs for trading the portfolio, although these are reported as a percentage of assets to the SEC by the funds in a Statement of Additional Information (SAI). The SAI is available to shareholders on request. Neither the expense ratio nor the SAI includes the transactions costs of spreads, normally incurred in unlisted securities and foreign stocks. These two costs can add significantly to the reported expenses of a fund. The expense ratio is often termed an Operating Expense Ratio (OER). Expensed Charged to an expense account, fully reducing reported profit of that year, as is appropriate for expenditures for items with useful lives under one year. Experience rating A technique insurance companies use to determine the correct price of a policypremium. Expiration The time an option contract lapses. Expiration cycle The recurring cycle of expiry months for which options on a particular security can be available. Basic options are placed in one of three cycles; Cycle 1 (the January/April/July/October, or the first month of each quarter); Cycle 2 (the second month of each quarter); or Cycle 3 (the third month of each quarter). At any one time, a basic option has contracts with three expiration dates outstanding. For example, in mid-February, options trading on cycle 3 will have March, June and September expiries available. Late in March, after the March options expire, a December contract will be added, thus offering June, September and December expiries. Higher-volume equity options, index options, and LEAPS can trade on other cycles, such as Cycle 4, Cycle 5 or Cycle 6. Cycle 4, for example, offers options in the two nearest months plus two months from Cycle 3. For