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 antspated retium expected to result during each state of nature by its probability of occurrence. Consider the following case Dominic owns a two-stock portfolio that invests in Happy Dog Soap Company (HDS) and Black Sheep Broadcasting (858). Three quarters of Dominie'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 detalled in the following table: Market Condition Probability of Occurrence Happy Dog Soap Black Sheep Broadcasting Strong 35% Normal 499 0.20 0.35 21% 289 -15% Weak 0.45 Calcutate expected retums for the individual stocks in Dominic's 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 Broadcasting stock over the next 1.494 The expected rate of return on Dominte's portfolie over the next year is 2.101 The expected returns for Dominic's portfolio were calculated based on three pos 2.36 ons in the market. Such conditions was vary from time to time, and for each condition there will be a specific outcome. These probabilities umes can be represented in the form of a con 1.25 probability distribution graph Dominic owns a two-stock portfolio that invests in Happy Dog Soap Company (HDS) and Black Sheep Broadcasting (858). Three- quarters of Dominic's portfolio value consists of HDS's shares, and the balance consists of 858's shares. Each stock's expected return for the next year will depend on forecasted market conditions. The expected returns from the stadies in different market conditions are detalled in the following table: Market Condition Probability of Occurrence Happy Dog Soap Black Sheep Broadcasting Strong 0.20 359 Normal 0.35 219 Weak 499 28% 0.45 -289 Calculate expected returns for the individual stocks in Dominle's portfolio as well as the expected rate of return of the entire portfolie over the three possible market conditions next year The expected rate of return on Happy Dog Soap's stock over the next year is . The expected rate of return on Black Sheep Broadcasting's stock over the next year is The expected rate of return on Dominie's portfolio over the next year is 4.35% The expected returns for Dominic's portfolio were calculated based on three possible conde market. Such conditions will vary from time to time, and for each condition there will be a specific outcome. These probabilities and outd De represented in the form of a continuous 2.50 probability distribution graph. 3.55 For example, the continuous probability distributions of rates of return on stocks for two ompanies are shown on the flowing Dominic owns a two-stock portfolio that invests in Happy Dog Soap Company (HDS) and Black Sheep Broadcasting (BSB). Three quarters af Dominic'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 Black Sheep Broadcasting Strong 0.20 35% 0.35 21% 28% -28% 49% Normal Weak 0.45 Calculate expected returns for the individual stocks in Dominie's 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 Soap's stock over the next year is . The expected rate of return on Black Sheep Broadcasting's stock over the next year is The expected rate or return on Dominic's portfolio over the next year is 2.28% The expected returns for Dominic's portfolio were calculated based on the conditions in the market. Such conditions will vary from time to time, and for each condition there will be a specific outcome. These probat2.744 Outcomes can be represented in the form of a continuous probability distribution graph 1.949 For example, the continuous probability distributions of rates of return on Two different companies are shown on the following from 3.089