Your stockbroker has called has called to tell you about two stocks: Monster Beverage Corporation (MNST) and Splunk, Inc. (SPLK). She tells you that Monster is selling for $53.00 per share and that she expects the price in one year to be $68.00. Splunk is selling for $107 per share and she expects the price in one year to be $125. The expected return on Monster has a standard deviation of 30 percent, while the expected return on Splunk has a standard deviation of 40 percent. The market risk premium for the S & P 500 has averaged 6.5 percent. The beta for Monster is .93 and the beta for Splunk is 1.49. The 10-year Treasury bond rate is currently 3%.
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.