Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Your stockbroker has called to tell you about two stocks: Netflix, Inc. (NFLX) and Amazon.com, Inc. (AMZN). She tells you that NFLX is selling for

image text in transcribed
Your stockbroker has called to tell you about two stocks: Netflix, Inc. (NFLX) and Amazon.com, Inc. (AMZN). She tells you that NFLX is selling for $430.00 per share and that she expects the price in one year to be $475.00. AMZN is selling for $2,317.00 per share and she expects the price in one year to be $2,645.00. The expected return on NFLX has a standard deviation of 15 percent, while the expected return on AMZN has a standard deviation of 30 percent. The market risk premium for the S&P 500 has averaged 6.0 percent. The beta for NFLX is 95 and the beta for AMZN is 1.40. The 10-year Treasury bond rate is currently 1.00%. Neither NFLX nor AMZN pays a cash dividend. Required: a) Determine the probability for each stock that you would earn a positive return. b) Determine the probability for each stock that you would earn less than your required rate of return. C) Explain why you would or would not buy either or both of the two stocks

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Financial Accounting Essentials You Always Wanted To Know Self Learning Management Series

Authors: Vibrant Publishers , Kalpesh Ashar

5th Edition

1636510973, 978-1636510972

More Books

Students also viewed these Finance questions