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nation, which of the following statements is true? wer risk. ower risk.

nation, which of the following statements is true? wer risk. ower risk.

A First Course in Probability (10th Edition)
A First Course in Probability (10th Edition)
10th Edition
ISBN:9780134753119
Author:Sheldon Ross
Publisher:Sheldon Ross
Chapter1: Combinatorial Analysis
Section: Chapter Questions
Problem 1.1P: a. How many different 7-place license plates are possible if the first 2 places are for letters and...
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2. Statistical measures of stand-alone risk Remember, the expected value of a probability distribution is a statistical measure of the average (mean) value expected to occur during a 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: Ethan owns a two-stock portfolio that invests in Happy Dog Soap Company (HDS) and Black Sheep Broadcasting (BSB). Three- quarters of Ethan'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 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 Happy Dog Soap Black Sheep Broadcasting Strong 0.50 50% 70% Normal 0.25 30% 40% Weak 0.25 -40% -50% Calculate expected returns for the individual stocks in Ethan'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 Ethan's portfolio over the next year is The expected returns for Ethan'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 continuou 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: search %23
Transcribed Image Text:2. Statistical measures of stand-alone risk Remember, the expected value of a probability distribution is a statistical measure of the average (mean) value expected to occur during a 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: Ethan owns a two-stock portfolio that invests in Happy Dog Soap Company (HDS) and Black Sheep Broadcasting (BSB). Three- quarters of Ethan'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 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 Happy Dog Soap Black Sheep Broadcasting Strong 0.50 50% 70% Normal 0.25 30% 40% Weak 0.25 -40% -50% Calculate expected returns for the individual stocks in Ethan'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 Ethan's portfolio over the next year is The expected returns for Ethan'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 continuou 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: search %23
Ch 08: Assignment Risk and Rates of Return • 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 Ethan's portfolio over the next year is The expected returns for Ethan'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 continuou 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 graph's information, which of the following statements is true? O Company A has lower risk. O Company B has lower risk. Grade It Now Save & Continue Continue without saving search (7
Transcribed Image Text:Ch 08: Assignment Risk and Rates of Return • 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 Ethan's portfolio over the next year is The expected returns for Ethan'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 continuou 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 graph's information, which of the following statements is true? O Company A has lower risk. O Company B has lower risk. Grade It Now Save & Continue Continue without saving search (7
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