Attempts Keep the Highest 2 1. Statistical measures of standalone risk 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 for states of nature), multiply the anticipated return expected to result during each state of nature by its probability of occurrence. Consider the following case: James owns a two-stock portfolio that invests in Blue Lama Mining Company (BLM) and Hungry Whale Electronics (HWE) Three- quarters of James's portfolio value consists of BLM's shares, and the balance consists of HWE'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 Blue Llama Mining 50% Hungry Whale Electronics 70% Probability of Occurrence 2596 45% Strong 3096 40% Normal 40 5098 Weak 30 Calculate expected returns for the individual stocks in James's portfolio as well as the expected rate of return of the entire portfolio over the three possible market conditions text year. A-Z The expected rate of return on Blue Ulama Mining's stock over the next year la . The expected rate of return on Hungry Whale Electronica's stock over the next year is The expected rate of return on James's portfolio over the next year is The expected returns for James's portfolio were calculated based on three possible conditions in the market. Such conditions will vary from time to time, and for each condition there will be a specific outcome. These probabilities and outcomes can be represented in the form of a continuous probability distribution graph For example, the continuous probability distributions of rates of return on stocks for two different companies are shown on the following graphs For example, the continuous probability distributions of rates of return on stods for two different companies are shown on the following graph PROBABILITY DENSITY Cory Company LD 23 LO 0 BATE OF RETURN Perce Based on the graphi's information, which company's returns exhibit the greater tisk? O Company H Company G 831F