Four analysts cover the stock of fluorine chemical. one forecasts a 6% return for the coming year. the second expects the return to be negative 6%. the third predicts a return of 8%. the 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 35 % comma 8 %, 17 %, and 40%, respectively, to the analysts' forecasts. given these probabilities, what is fluorine chemicals expected return for the coming year

Expected return = 3.78%

Explanation:

Given:

Expected returns        Probabilities of being correct

 6%                                  35%

- 6%                                    8%

 8%                                   17%  

 2%                                   40%

Now,

Expected return is calculated as:

= Summation of [ Return × Probability ]

therefore,

Expected return

= ( 0.06 × 0.35 ) + ( -0.06 × 0.08 ) + ( 0.08 × 0.17 ) + ( 0.02 × 0.40 )

= 0.021 - 0.0048 + 0.0136 + 0.008

= 0.0378

or

= 0.0378 × 100%

or

Expected return = 3.78%

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