Ch8. 3. Statisticalmeasures of standalone risk

Suppose Maria owns a two-stock portfolio that invests in Falcon Freight Company (FF) and Pheasant Pharmaceuticals (PP). Three-quarters of Marias portfolio value consists of Falcon Freights shares, and the remaining balance consists of Pheasant Pharmaceuticalss shares.

Each stocks 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	Expected Returns
	Occurrence	FF	PP
Strong	50%	30%	42%
Normal	25%	18%	24%
Weak	25%	-24%	-30%

Calculate the expected returns for the individual stocks in Marias portfolio as well as the expected rate of return of the entire portfolio over the three possible market conditions next year.

	The expected rate of return on Falcon Freights stock over the next year is .
	The expected rate of return on Pheasant Pharmaceuticalss stock over the next year is .
	The expected rate of return on Marias portfolio over the next year is .