Market Condition Probability of Occurrence 0.20 Strong Normal Weak Calculate expected returns for the individual stocks in James'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 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 James's portfolio over the next year is PROBABILITY DENSITY -40 0.35 0.45 The expected returns for James'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. For example, the continuous probability distributions of rates of return on stocks for two different companies are shown on the following graph: -20 0 Company A Company B Happy Dog Soap Black Sheep Broadcasting 17.5% 10.5% -14% 20 DATE OF RETURN (De 40 24.5% 14% -17.5% 60 M
Market Condition Probability of Occurrence 0.20 Strong Normal Weak Calculate expected returns for the individual stocks in James'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 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 James's portfolio over the next year is PROBABILITY DENSITY -40 0.35 0.45 The expected returns for James'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. For example, the continuous probability distributions of rates of return on stocks for two different companies are shown on the following graph: -20 0 Company A Company B Happy Dog Soap Black Sheep Broadcasting 17.5% 10.5% -14% 20 DATE OF RETURN (De 40 24.5% 14% -17.5% 60 M
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Market Condition Probability of Occurrence
0.20
0.35
0.45
Strong
Normal
Weak
Calculate expected returns for the individual stocks in James'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 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 James's portfolio over the next year is
The expected returns for James'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.
PROBABILITY DENSITY
-40
For example, the continuous probability distributions of rates of return on stocks for two different companies are shown on the following graph:
Company A
&
Company B
-20
Happy Dog Soap
17.5%
10.5%
-14%
0
Black Sheep Broadcasting
24.5%
14%
-17.5%
20
RATE OF RETURN (Dorcent)
40
60
Transcribed Image Text: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
A
-20
0
20
40
60
RATE OF RETURN (Percent)
-40
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.
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