Question

Four analysts cover the stock of Fluorine Chemical. One forecasts a 5% return for the coming year. A second expects the return to be -6%. A third predicts a return of 8%. A fourth expects a 2% 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 26%, 8%, 19%, and 47%, respectively, to the analysts' forecasts. Given these probabilities, what is Fluorine Chemical's expected return for the coming year? Fluorine Chemical's expected return for the coming year is %. (Round to two decimal places.)

Answer 1

Return with their propabilities is

Analysts	Probability	Return
1	26%	5%
2	8%	-6%
3	19%	8%
4	47%	2%

So expected return in the weighted average sum of the return = p1*r1 + p2*r2 + p3*r3 + p4*r4

Epected return = 0.26*5 + 0.08*(-6) + 0.19*8 + 0.47*2 = 3.28%

So, expected return over the coming year = 3.28%