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:

Van owns a two$-$stock portfolio that invests in Blue Llama Mining Company $($BLM$)$ and Hungry Whale Electronics $($HWE$).$ Three$-$quarters of Van$$s portfolio value consists of Blue Llama Mining$$s shares, and the balance consists of Hungry Whale Electronics$$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

BLM

HWE

Occurrence

Strong $20\%50\%70\%$

Normal $35\%30\%40\%$

Weak $45\%-40\%-50\%$

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

$$ The expected rate of return on Blue Llama Mining$$s stock over the next year is $\_\_\_\_\_\_\_\_\_\_.$

$$ The expected rate of return on Hungry Whale Electronics$$s stock over the next year is $\_\_\_\_\_\_\_\_.$

$$ The expected rate of return on Van$$s portfolio over the next year is $\_\_\_\_\_\_\_.$