Question
James owns a two-stock portfolio that invests in Happy Dog Soap Company (HDS) and Black Sheep Broadcasting (BSB). Three-quarters of Jamess portfolio value consists of
James owns a two-stock portfolio that invests in Happy Dog Soap Company (HDS) and Black Sheep Broadcasting (BSB). Three-quarters of Jamess portfolio value consists of HDSs shares, and the balance consists of BSBs 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 Occurrence | Happy Dog Soap | Black Sheep Broadcasting |
---|---|---|---|
Strong | 0.25 | 37.5% | 52.5% |
Normal | 0.45 | 22.5% | 30% |
Weak | 0.30 | -30% | -37.5% |
Calculate expected returns for the individual stocks in Jamess 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 Happy Dog Soaps stock over the next year is . | |
The expected rate of return on Black Sheep Broadcastings stock over the next year is . | |
The expected rate of return on Jamess portfolio over the next year is |
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