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 Blue Lama Mining Company (BLM) and Hungry Whale Electronics (HWE). Three-quarters of lan's portfolio value consists of BLM's shares, and the balance consists of HWE's shares Each mock'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: 7- ted Blue Llama Mining Market Condition Probability of Occurrence Strong 0:25 Normal 0.45 0.30 Hungry Whale Electronics 219 12 Weak 99 -1204 Calculate expected returns for the individual stocks in tan'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 Blue Liama Mining's stock over the next year is - The expected rate of retum Hungry Whale Electronics stock over the next verin . The expected rate of return on La's portfolio ver the next year is We expected returns ton's portfolio were calculated based on the posible conditions in the market, such conditions will vary from time to time, and for each contion there will be a specifico come. These probabilities and outcomes can be represented in the form of a continuous probability Vor exam, we continue probably dribsons of rates of return on Mock for two different companies are shown on the following graph HORARY ON 38: Assignment - Risk and Rates of Return PROBADILITY DENSITY Company Company - -30 20 DATE OF BETURN Peranti Dated on the graoh's formation, with company retums in the greater Company Company Grade It Now Save A Continue Continue without saving