Your stockbroker has called has called to tell you about two stocks: Netflix, Inc. (NFLX) and International Business Machines Corp. (IBM). He tells you that Netflix is selling for $138.00 per share and that he expects the price in one year to be $160.00. IBM is selling for $167.00 per share and he expects the price in one year to be $170.00. The expected return on NFLX has a standard deviation of 30 percent, while the expected return on IBM has a standard deviation of 8%. The market risk premium for the S & P 500 has averaged 7.5 percent. The beta for NFLX is .7 and the beta for IBM is .9.
a)Determine the probability for each stock that you would earn more than your required rate of return.
b)Determine the probability for each stock that you would earn a return that is negative.
c)Explain why you would or would not buy either or both of the two stock
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