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Four analysts cover the stock of Fluorine Chemical
Four analysts cover the stock of Fluorine Chemical. One forecasts a 6% return for the coming year. The second expects the return to be 5%. The third predicts a return of 11%. The fourth expects a 3% return in the coming year. You are relatively confident that the return will be positive but not large, so you arbitrarily assign probabilities of being correct of 34%, 8%, 19%, and 39?%, respectively, to the analysts' forecasts. Given these probabilities, what is Fluorine Chemical's expected return for the coming year?
Expert Solution
Expected return
= Return of first analyst x Probability + Return of second x Probability of second + ...... + Return of Last analyst x Probability of last analyst
So,
Expected return in the given case
= 6% x 34% + 5% x 8% + 11% x 19% + 3% x 39%
= 5.70%
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