Your stockbroker has called to tell you about two stocks: Uber Technologies, Inc. (UBER) and Lyft, Inc. (LYFT). She tells you that UBER is selling for $22.00 per share and that she expects the price in one year to be $49.00. LYFT is selling for $13.00 per share and she expects the price in one year to be $41.00. The expected return on UBER has a standard deviation of 20 percent, while the expected return on LYFT has a standard deviation of 30 percent. The market risk premium for the S & P 500 has averaged 7.0 percent. The beta for UBER is 1.33 and the beta for LYFT is 1.88. The 10-year Treasury bond rate is currently 3.00%. Neither UBER nor LYFT pays a cash dividend. Determine the probability for each stock that you would earn a negative 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.
Your stockbroker has called to tell you about two stocks: Uber Technologies, Inc. (UBER) and Lyft, Inc. (LYFT). She tells you that UBER is selling for $22.00 per share and that she expects the price in one year to be $49.00. LYFT is selling for $13.00 per share and she expects the price in one year to be $41.00. The expected return on UBER has a standard deviation of 20 percent, while the expected return on LYFT has a standard deviation of 30 percent. The market risk premium for the S & P 500 has averaged 7.0 percent. The beta for UBER is 1.33 and the beta for LYFT is 1.88. The 10-year Treasury bond rate is currently 3.00%. Neither UBER nor LYFT pays a cash dividend. Determine the probability for each stock that you would earn a negative 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.
Chapter7: Common Stock: Characteristics, Valuation, And Issuance
Section: Chapter Questions
Problem 23P
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Your stockbroker has called to tell you about two stocks: Uber Technologies, Inc. (UBER) and Lyft, Inc. (LYFT). She tells you that UBER is selling for $22.00 per share and that she expects the price in one year to be $49.00. LYFT is selling for $13.00 per share and she expects the price in one year to be $41.00. The expected return on UBER has a standard deviation of 20 percent, while the expected return on LYFT has a standard deviation of 30 percent. The market risk premium for the S & P 500 has averaged 7.0 percent. The beta for UBER is 1.33 and the beta for LYFT is 1.88. The 10-year Treasury bond rate is currently 3.00%. Neither UBER nor LYFT pays a cash dividend.
- Determine the probability for each stock that you would earn a negative 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.
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