A company estimates that its profit over each calendar year is normally distributed with a mean of

1% of assets per year and the standard deviation of 2% of assets per year.

(a) (6 points) How much equity (as a percentage of assets) does the company currently need to

have in order to be 99% sure that its equity will not fall below 5% of its assets at the end of two

years.

(b) (4 points)If the company currently has equity that is 3% of its assets, what is the probability

that all of its equity will be wiped out at the end of three years? Ignore taxes. Remember to show