Problem: Your broker has called you to recommend purchasing 1,000 shares of Sigma Corporation common stock. Your broker has said the recommendation is based on an expected return of 18 percent with a standard deviation of 12 percent. After doing some research you have found that Sigma's beta is 2.3, the 10-year T-Bond rate is 3 percent and the return on the S&P 500 has average 12 percent in the last five years.
Q1. What is the probability of earning a negative return?
Q2. What is the probability of earning less than the required rate of return?
Q3. Discuss whether or not you would purchase Sigma's stock?