**Portfolio Returns Analysis** Ian owns a two-stock portfolio that invests in Blue Llama Mining Company (BLM) and Hungry Whale Electronics (HWE). Three-quarters of Ian’s portfolio value consists of BLM's shares, and the balance consists of HWE'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: | Market Condition | Probability of Occurrence | Blue Llama Mining | Hungry Whale Electronics | |--------------------|------------------------------|-------------------------|-----------------------------------| | Strong | 0.50 | 27.5% | 38.5% | | Normal | 0.25 | 16.5% | 22% | | Weak | 0.25 | -22% | -27.5% | --- Calculate expected returns for the individual stocks in Ian’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 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 Ian’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 probability distribution* graph. **Graph Description: Probability Density of Rates of Return** The graph illustrates the probability density of rates of return for two companies, Company G and Company H. The x-axis represents the "Rate of Return (Percent)" ranging from -40% to 60%, while the y-axis represents the "Probability Density." - **Company G** (orange line): The probability density curve is narrow and peaked, centered around a rate of return of approximately 20%. This suggests that the returns for Company G are more concentrated around this mean value, implying less variability and, hence, lower risk. - **Company H** (green line): The probability density curve is wider and less peaked, centered around the same mean rate of return of 20%. This wider spread indicates that the returns for Company H are more dispersed, implying greater variability and, consequently, higher risk. **Question:** Based on the graph’s information, which company’s returns exhibit the greater risk? - ○ Company H - ○ Company G **Answer Explanation:** From the graph, it is evident that Company H has a wider probability density curve, indicating greater variability in the rates of return. Therefore, Company H's returns exhibit the greater risk.