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-1.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? The S&P 500 currently is at 2,000 and the contract multiplier is $250.

Number of Contracts=?

a-2.Should he buy or sell contracts?

b.Assuming that monthly returns are approximately normally distributed, what is the probability that this market-neutral strategy will lose money over the next month? Assume the risk-free rate is .5% per month.(Do not round intermediate calculations. Round your answer to 2 decimal places.)

Probability=% ?