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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: Carlos owns a two-stock portfolio that invests in Blue Llama Mining Company (BLM) and Hungry Whale Electronics (HWE). Three-quarters of Carlos'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: Probability of Market Condition Occurrence BLM HWE 20% Strong 20 % 28% Normal 35% 12% 16% Weak 45% -16 % -20% Calculate expected returns for the individual stocks in Carlos'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 returm 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 Carlos's portfolio over the next year is

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