1. Suppose that the simple return of a monthly bond index follows the model r = 0.02 + ax + 0.2a4-2, where ay is a white noise series with mean zero and standard deviation a 0.025. What are the mean and variance of the return series ri? Compute the lag-1 and lag-2 autocorrelations of re. Assume that a 100 = 0.01 and 299 -0.02. Compute the 1-step-ahead and 2-step- ahead forecasts of the return series at the forecast origint 100. Compute the associated forecast errors and the standard deviations of the forecast errors