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d) Four analysts cover the stock of Deng Chemical. One forecasts a 7% return for the coming year. The second expects the return to be
d) Four analysts cover the stock of Deng Chemical. One forecasts a 7% return for the coming year. The second expects the return to be 5%. The third predicts a 4% return. The fourth expects a 10% return in the coming year. You are relatively confident that the return will be positive but not very large, so you arbitrarily assign probabilities of 35%,35%,5%, and 25%, respectively, to the analysts' forecasts. Given these probabilities, what is Deng Chemical's expected return for the coming year? (5 marks) e) How are total risk, non-diversifiable risk, and diversifiable risk related? Why is the nondiversifiable risk the only relevant risk? (2 marks) [Total: 40 Marks]
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