2. You estimate a regression of the form given below in order to evaluate the effect of various firm-specific factors on the returns of a sample of firms. You run a cross-sectional regression with N=200 firms. ni = Be + B1Si +B2MB; +B3PE; + BBETA; + ui where r, is the percentage annual return of the stock; Sis the size of firm i measures in terms of sales revenue; MB, is the market to book ratio of the firm; PE is the pricelearnings ratio of the firm; BETA is the stock's CAPM beta coefficient; u; is the usual stochastic error term. You estimate the model and obtain the following results coefficient standard error Bo 0.080 0.064 B 0.801 0.147 B2 0.321 0.136 B: 0.164 0.420 BA -0.084 0.120 i) Calculate the t-ratios. What do you conclude about the effect of each variable on the returns of the security? [10 marks)- 200 words ii) What variables you might consider deleting from the regression, following your previous findings? [5 marks] 200 words ili) If a stock's sensitivity to market movements increased from 1 to 1.2 what would be the expected effect on the stock's return? [5 marks] 200 words iv) Is this (in part i above) the effect you would expect? Explain. [10 marks] 200 words Total [30 marks]