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.

Standard Deviation BetaR-square of Residuals 0.750 .650 .06 (i.e., 6% monthly)

Now suppose that the manager misestimates the beta of Waterworks stock, believing it to be 0.50 instead of 0.75. The standard deviation of the monthly market rate of return is 5%.

a.What is the standard deviation of the (now improperly) hedged portfolio?(Do not round intermediate calculations. Round your answer to 2 decimal places.)

b.What is the probability of incurring a loss over the next month if the monthly market return has an expected value of 1% and a standard deviation of 5%?(Do not round intermediate calculations. Round your answer to 2 decimal places.)