2. Statistical measures of standalone risk Remember, the expected value of a probability distribution is a statistical measure of the avarage (mean) value expected to occur durion all possible circumstances. To compute an assel'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: Jan owns a two-stock portfolio that invests in Hoyky Jog Soap Company (HDS) and Black Sheep Broadcasting (BSB). Three quarters of lan'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 deperd on forecasted market conditions. The expected returns from the stocks in different market conditions are detaled in the following table: Calculate expected returns for the individual stocks in lan's portfolio as well as the expected rate of return of the entire portfolio aver the three posible 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 retum on lan's portfolio over the next year is The expected returns for Ian's portfolio were calculated based on three possible conditions in the market. Such conditions will vary from time to time, and for each condition there will be a specific outcome. These probabilities and outcomes can be represented in the form of a continuous probabuity