Suppose we have two stocks stock A, and B. stock A’s returns are normally distributed with mean 1% and variance 4.5. Stock B’s returns are normally distributed with mean 5% and variance 20. In addition the covariance between the returns of stock A and B is -5. Suppose you buy a portfolio of equal shares from stock A and stock B (To get

the values for Z round the numbers to two decimal places).

(a) What is the probability that stock A will have negative returns

There are more questions than just (a) but I'm hoping with an explanation of how to do (a) I'll be able to figure the rest out :)

Edit: Here's what I've tried:

P(z<0)

z=(0-0.01)/0.045

z=-0.2222

P(Z<-0.22)

=0.5-0.0871 (Using z-table)

=0.4129

Is that right? :)

Question (b) asks What is the probability that stock A will exceed 5% and I got 0.1867, is that right?

The last two parts are:

(e) What is the expected returns on your portfolio

(f) What is the variance of your portfolio

How would you do those?