I understand that the formula for the holding period return on a stock is the following:

- Expected Return = required return + return from convergence

Return from convergence is what I remember from Level 1 - it is the percentage of gain/loss on a stock.

“Required return” is what I’m having trouble with - I understand that if the requried return on equity for a stock is 11% and the calculation is for the expected 6 month holding period return, then I take the 11% and take the square root. But why does that get added on to the “retur from convergence.”

My thought process is that expected return = return from convergence only

Thanks in advance!