Your stockbroker has called to tell you about two stocks: Amazon.com, Inc. (AMZN) and Alibaba Group Holding Limited (BABA). She tells you that AMZN is selling for $92.00 per share and that she expects the price in one year to be $140.00. BABA is selling for $90.00 per share and she expects the price in one year to be $135.00. The expected return on AMZN has a standard deviation of 30 percent, while the expected return on BABA has a standard deviation of 18 percent. The market risk premium for the S & P 500 has averaged 6.0 percent. The beta for AMZN is 1.23 and the beta for BABA is .60. The 10-year Treasury bond rate is currently 4.00%. Neither AMZN nor BABA pays a cash dividend.

Required:

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

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.