Your stockbroker has called to tell you about two stocks: Carrington Atlantic (CAL) and Degy, Inc. (DEG). She tells you that CAL is selling for $340.00 per share and that she expects the price in one year to be $395.00. DEG is selling for $1,861.00 per share and she expects the price in one year to be $2,171.00. The expected return on CAL has a standard deviation of 12 percent, while the expected return on DEG has a standard deviation of 35 percent. The market risk premium for the S & P 500 has averaged 6.5 percent. The beta for CAL is 1.29 and the beta for DEG is 1.51. The 10-year Treasury bond rate is currently 1.90%. Neither CAL nor DEG pays a cash dividend.

a) Determine the probability for each stock that you would earn a negative return.

b) Determine the probability for each stock that you would earn more than your required rate of return.

c) Explain why you would or would not buy either or both of the two stocks.