2. Statistical mensures of standalone risk Remember, the expected vabie of a probablity cilstribution is a statistical measure of the average (mean) value expected to cecur during all possible circumstances. To compute an asset's expected return under a range of possible circumstances (or states of nabire). Ifuldiply the anticipated retum expected to result during each state of nature by is probablity of occurrence. Consider the following case: Dominic owns a two-stock portfolia chat invests in Celestal Crane Cosmetics Company (cCC) and tumbering ox Truckmakers (Lot). Threequarters of bominic's portfolio value consists of CCe's shares, and the belance consists of LoT's shares. Each stock's expected return for the next year will depend on forecasted market conditions. The expected returns from the stocks in different market conditions are detalled in the following table: Calculate expected returns for the Indingual stock in Dsminics portfolio as weil as the expected rate of return of the entire portfons over che three pessible market condibion next vear. - The exgected rate of return of Celestial Crane Conmetichn stock over the next year is - The tupected rate of return on Lumbenng oi Truckmakers stock over the neit year is * The expected rate of return on pominiss portsolis over the next year is The expectad retums for Domirick portholo were caicuated Asied on three poskble conditions in the market, Such conditions will vary from time ta time, and for noch conation there wil be a specific outcome. These probabibess and cutcemes can be represented in the form ef a concinuous prooabuivy distributign graph. For examplt, the eontirwous frebsbaty distnbutions of rates of retum on stocki for two ditferent companieis are shown on the follewing graph: For example, the continuous probabality distributions of rates of retum on stocks for two different companies are shown on the following graph: Based on the graph's information, which of the following statements is true? Company A has a smaller standard deviation. Compaay B has a smaller mandard deviacon