conditions are detailed in the following table 25 24 30 retu

conditions are detailed in the following table 25% -24% -30% return of the entire portfolio over the three . The expected rate of return on Black Sheep Br The expected returns for Darnell\'s portfolio were calculated based on three possible conditions in the market. Such conditions will vary from time to n there will be a specific outcome. These probabilities and outcomes can be represented in the form of a continuous For example, the continuous probability distributions of rates of return on stocks for two different companies are shown on the following graph:

Solution

Happy Dog Soap:

Expected Rate of Return = 50% * 30% + 25% * 18% * 25% * (-24%)
Expected Rate of Return = 14.73%

Black Sheep Broadcasting:

Expected Rate of Return = 50% * 42% + 25% * 24% * 25% * (-30%)
Expected Rate of Return = 20.55%

Darnell’s Portfolio:

Strong:

Expected Return = (3/4) * 30% + (1/4) * 42%
Expected Return = 33.00%

Normal:

Expected Return = (3/4) * 18% + (1/4) * 24%
Expected Return = 19.50%

Weak:

Expected Return = (3/4) * (-24%) + (1/4) * (-30%)
Expected Return = -25.50%

Expected Rate of Return = 50% * 33.00% + 25% * 19.50% + 25% * (-25.50%)
Expected Rate of Return = 15.00%