2. Statistical measures of standalone risk Reenember, the expected value of a probability distribution is a statistical measure of the average (mean) value expeted to occur during all possible circumstances. To compute an asset's expected retum under a range of possible circumstances (or states of nature), multiply the anticipsted return expected to resilt duriag each state of nature by its probability of occurrence. Cansider the following case: Aaroci owns a two-stock portfollo that imvests in Blue Lama Mining Company (BLM) and Hungry Whale Electronics (HWE). Threequarters of Aarop's portfolio value consists of BUM's shares, and the balance consists of tiwE's shares. Fach stock's expected return for the next yeor will depend on forecasted market conditions. The expected returns from the stocks in dlierent market conditions are detailed in the following table: Calcilate expected returns for the individual stocks in Aaron's portfolis as well as the expected rate of return of the entire portfolis over the three possible market candithons next year. - The expected rate of return on Blue Uame Mining's stock over the next year is - The expected rate of return on Hungry Whale Electronics's stock, over the next year id - The expected rate of return on Aaron's portfolio over the next year is The expocted returns for Aaron's portfolio were calculated bssed on three possible conditions in the macket. Such conditions will vary from time to time, ond for each condition there wil be a specific outcome. These probobilities and outcomes can be cepresanted in the foum of a confinugus