2. Statistical measures of stand-alone riskRemember, the expected value of a probability distribution is a statistical measure of the average (mean) value expected to occur during apossible circumstances. To compute an asset's expected return under a range of possible circumstances (or states of nature), multiply theanticipated return expected to result during each state of nature by its probability of occurrence.Consider the following case:Ethan owns a two-stock portfolio that invests in Happy Dog Soap Company (HDS) and Black Sheep Broadcasting (BSB). Three-quarters of Ethan'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 stocksin different market conditions are detailed in the following table:Market ConditionProbability of OccurrenceHappy Dog SoapBlack Sheep BroadcastingStrong0.5050%70%Normal0.2530%40%Weak0.25-40%-50%Calculate expected returns for the individual stocks in Ethan's portfolio as well as the expected rate of return of the entire portfolio over thethree 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 Ethan's portfolio over the next year isThe expected returns for Ethan's portfolio were calculated based on three possible conditions in the market. Such conditions will vary from timeto time, and for each condition there will be a specific outcome. These probabilities and outcomes can be represented in the form of a continuouprobability distribution graph.For example, the continuous probability distributions of rates of return on stocks for two different companies are shown on the following graph:search%23 Ch 08: Assignment Risk and Rates of Return• 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 Ethan's portfolio over the next year isThe expected returns for Ethan's portfolio were calculated based on three possible conditions in the market. Such conditions will vary from timeto time, and for each condition there will be a specific outcome. These probabilities and outcomes can be represented in the form of a continuouprobability distribution graph.For example, the continuous probability distributions of rates of return on stocks for two different companies are shown on the following graph:PROBABILITY DENSITYCompany ACompany B-40-20204060RATE OF RETURN (Percent)Based on the graph's information, which of the following statements is true?O Company A has lower risk.O Company B has lower risk.Grade It NowSave & ContinueContinue without savingsearch(7

Name: 2. Statistical measures of stand-alone riskRemember, the expected val
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Description: 2. Statistical measures of stand-alone riskRemember, the expected value of a probability distribution is a statistical measure of the average (mean) value expected to occur during apossible circumstances. To compute an asset's expected return under

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Expected return of a stock = probability weighted average of the return of the…

nation, which of the following statements is true? wer risk. ower risk.