Please double check A and B and assist on C. Not sure how to go about C. Thank you.

16) The following is part of the computer output from a regression of monthly returns on Waterworks stock against the S&P 500 index. A hedge fund manager believes that Waterworks is underpriced, with an alpha of 2% over the coming month. Beta = .75, R-square = .65, Standard deviation of Residuals = .06(i.e., 6% monthly) A. If he holds a $6 million portfolio of Waterworks stock and wishes to hedge market exposure for the next month using one-month maturity S&P 500 futures contracts, how many contracts should he enter? Should he buy or sell contracts? The S&P 500 currently is at 2,000 and the contract multiplier is $250. $3,000,000x.75 _ $2,250,000 $250x $1,500 3 75,000 As such he should sell 6 contracts. B. What is the standard deviation of the monthly return of the hedged portfolio? In this case it would be the same as the residual, 6% C. Assuming that monthly returns are approximately normally distributed, what is the probability that this market neutral strategy will lose money over the next month? 16) The following is part of the computer output from a regression of monthly returns on Waterworks stock against the S&P 500 index. A hedge fund manager believes that Waterworks is underpriced, with an alpha of 2% over the coming month. Beta = .75, R-square = .65, Standard deviation of Residuals = .06(i.e., 6% monthly) A. If he holds a $6 million portfolio of Waterworks stock and wishes to hedge market exposure for the next month using one-month maturity S&P 500 futures contracts, how many contracts should he enter? Should he buy or sell contracts? The S&P 500 currently is at 2,000 and the contract multiplier is $250. $3,000,000x.75 _ $2,250,000 $250x $1,500 3 75,000 As such he should sell 6 contracts. B. What is the standard deviation of the monthly return of the hedged portfolio? In this case it would be the same as the residual, 6% C. Assuming that monthly returns are approximately normally distributed, what is the probability that this market neutral strategy will lose money over the next month