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Math Help - Probability of Stocks

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    Probability of Stocks

    Suppose we have two stocks stock A, and B. stock As returns are normally distributed with mean 1% and variance 4.5. Stock Bs 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?
    Last edited by jeremym; November 28th 2011 at 12:36 PM.
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