A stockbroker has called about two stocks: International Business Machines Corporation (IBM) and Netflix, Inc. (NFLX). She tells you that IBM is selling for $125.00 per share and that she expects the price in one year to be $150.00. Netflix is selling for $340.00 per share and she expects the price in one year to be $385.00. The expected return on IBM has a standard deviation of 15 percent, while the expected return on NFLX has a standard deviation of 30 percent. The market risk premium for the S & P 500 has averaged 6.0 percent. The beta for IBM is 1.61 and the beta for NFLX is 1.53. The ten-year Treasury bond rate is 3 percent.
a) Determine the probability for each stock that you would earn a negative return.
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