1. What does the mean of ui,t, that is, E(ui,t), equal to?

2.In your own words, explain the intuitive meaning of the term consistent estimator. What does it imply practically about our ability to recover the true value of ?

The Capital Asset Pricing Model (CAPM) can be written as E(Ri) = B: E(RM), where R; is the excess return on a stock i (in excess of the risk-free rate), Rm is the ex- cess return on the aggregate market index (e.g., S&P 500), and Bi is a measure of stock's systematic risk - also known as stock's beta - given by: Cov(Ri, RM) B;= var(RM) The first step in using the CAPM is to estimate the stocks beta using the market model. The market model can be written as: Ri,t = 0; + b;RM,+ + Wi,t, where Ri,t is the excess return for security i at time t, RM,4 is the excess return on the aggre- gate market index (e.g., S&P 500) at time t, and W,t is an iid (independent and identically distributed) random disturbance term