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Dominic owns a two-stock portfolio that invests in Blue Llama Mining Company (BLM) and Hungry Whale Electronics (HWE). Three-quarters of Dominics portfolio value consists of BLMs shares, and the balance consists of HWEs shares. Each stocks 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 Occurrence Blue Llama Mining Hungry Whale Electronics Strong Normal Weak 25% 45% 30% 4390 25% -3490 60% 34% -43% Calculate expected returns for the individual stocks in Dominics 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 Minings stock over the next year is The expected rate of return on Hungry Whale Electronicss stock over the next year is The expected rate of return on Dominics portfolio over the next year is The expected returns for Dominics 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 probability 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 DENSITY Company A Company B -40 20 20 40 60 RATE OF RETURN (Percent) Based on the graphs information, which of the following statements is true? O Company A has lower risk. O Company B has lower risk.

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Home nert Page Layout Formulas Data Review View dd-Ins s Cut aCopy Σ AutoSum Wrap Text в 1 프· ー· 鱼, Δ. : rーー 遑锂函Merge & Center. $, % , 弼,8 C Conditional Format CeInsert Delete Format Formatting as Table Styles2 Clear Sort &Find & Format Painter Clipboard Alignment Number Cells Edting BY41 BW BX BY BZ CA св CD CE CF CG CH CJ 23 24 25 26 27 28 29 30 31 32 33 ANS1 EXPECTED RETURN ON BLM OVER NEXT YEAR IS 34 35 36 37 ANS2 TRUECOMPANY A HAS LOWER RISK 38 39 40 market prob condition blue llama hungry whale PORTFOLIO = EXPECTED RETURN 0.25 0.45 0.3 43% 26% 34% 60% 34% -43% 47.25% 28.00% -36.25% 10.7500% 11.7000% 10.2000% 12.2500% P* PORTFOLIO 11.8125% 15.3000% 12.6000% 10.8750% 17.4000% 13.5375% 15.0000% strong normal weak -12.900096 E(R): EXPECTED RETURN ON WHE OVER NEXT YEAR IS EXPECTED RETURN ON PORTFOLIO OVER NEXT YEAR IS 12.2500% 17.4000% 13.5375% AS IT HAS LOWER RANGE OF RETURNS COMPARED TO COMPANY B 4 KE CAPM UTILITY, SHARPE, beta bond c future INDEX INTL CAP BUD LEASING PV, FV, ANNUITY DIR cleanYIELD bond stru WACC RESI ex di 福 130% 02-01-2019

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