Attempts: Keep the Highest: 1/4 1. Statistical measures of standalone risk Aa Aa Remember, the expected value of a probability distribution is a statistical measure of the average (mean) value expected to occur during all possible circumstances. To compute an asset's expected return under a range of possible circumstances (or states of nature), multiply the anticipated return expected to result during each state of nature by its probability of occurrence. Consider the following case: Ian owns a two-stock portfolio that invests in Happy Dog Soap Company (HDs) and Black Sheep Broadcasting (BSB). Three-quarters of Ian's portfolio value consists of HDS's shares, and the balance consists of BSB'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 detailed in the following table: Market Condition Probability of occurrence Happy Dog Soap Blach Sheep Broadcasting Strong Normal Weak 25% 45% 30% 35% 21% -28% 49% 28% -3590 o search