If a firm employs 5,000 analysts, how many of them are likely to issue forecasts that beat the market eight years in a row, assuming none of them has any superior ability and that there are
No transaction costs?

Question

Quizplus · Accepted Answer

If none of the analysts have superior ability, the probability of any one analyst beating the market in a given year is 0.5. Over eight years, the probability is (0.5)^8. Multiplying this by 5,000 analysts gives approximately 19.53, which rounds to about 20.

If a Firm Employs 5,000 Analysts, How Many of Them