Your stockbroker has called you about two stocks: The Coca Cola Company (KO) and Walmart Stores, Inc. (WMT). She tells you that KO is selling for $178.00 per share and that she expects the price in one year to be $215.00. WMT is selling for $1,300.00 per share and she expects the price in one year to be $1,375.00. The expected return on KO has a standard deviation of 10 percent, while the expected return on WMT has a standard deviation of 20 percent. The market risk premium for the S&P 500 has averaged 6.5 percent. The beta for KO is .57 and the beta for WMT is 1.34. The ten-year Treasury bond rate is 3 percent.

Required:

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.