ssignment 08- Risk and Rates of Return Remember, the expacted valne of a probability distribution is a statistical mearsure of the average (mean) value expected to ecour during all possible crcumstances. To compute an asset's expected reburm under a range of possle dircumstances (or states of nature), multiply the anticlpated rebun expected to result during each state of nature by its probability of occurrenoe. Consider the following case: Aaron owns a two-stock portfolio that Invests in Blue Liama Mining Company (BLM) and Hungry Whale Electronics (HWE). Three-quarters of Aaron's portfolio value consists of BLM's shares, and the balance consists of HWE's shares Each stodk's expected return for the next year will depand on foracasted market conditions. The expected returns from the stocks in different market conditions are detailed in the following table: Market Condition Probability of Occurrence Blue Llama Mining Hungry Whale Electronics Strong 20% 35% 45% 49% 28% -35% 21% Weak -28% Calculate expected neturns for the individual stocks in Aaron'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 Liama Mining's stock over the next year is The expected rate of ceturn on Hungry Whale Eiectronics's stsc over the nest year is . Thespected retuofreturn on Aaron s portfolio over the notre The expected returns for Aaron's portfollo were celculated besed on three spssible conditions in the market Sch conditions wid vary froni time to time, and for each condition there i be a speaific outcome These probapibies and outcomes can be sepresented the fom of a continuous pronabity atbution gragh For example, pi contrwu pr kobity distroutors O. ates