1. Assume that you have 3 indices X1, X2, X3 with the following data: 2. Var(X) 0.2 3. Var(X)= 0.3 4. Var(X3)0.5 5. E(X) 0.1. E(X2-0.2. E(G) 0.3 These are the expected values Now assume you are having a stock Z with the following data: 1. (Z) 0.5 ( this is stock volatility ) 2. E(Z)-0.5 3. cov(Xi, Z)0.4 that is cov(Xi, Z) -0.4, cov(X2, Z)0.4, cov(X3, Z) 0.4 Assume that you are running the regression of Z versus Xi, X2, Xs (X, are the independent variables) Based on this data answer the following questions 1. What are the coefficients B1, 2, B3 for this regression? 2. What is the intercept Bo for this regression? 3. What are the 95% confidence interval assuming the betas follow a normal distribution? 4. Would you reject the hypothesis that A-0 on a 95%.99% ? Why? 5. Assume you know that Xi moved by 1%, 2%,3% respectively what will be the projected move- ment of stock Z? 6. (extra credit) Assume that Bi are portfolio weights. Can you calculate its varfance? What is the relationship between the variance of the stock and the portfolio variance? Would you recommend to invest in this portfolio rather than in a stock