6.

7. suppose that you wish to test the hypothesis that risk has no effect on a security's return against the alternative that it has an effect.Formulate the appropriate hypothesis and using your estimates test it at 5% level of significance. Show all steps, and clearly indicate your decision to reject H0
8. Construct a 90% confidence interval around the effect of liquidity on a securitys return

Suppose that you have just started your first job as a junior investment analyst at a hedge fund. You have the data on average annual returns (yield), risk and liquidity levels for the following #five securities (e.g Bonds): Security # Return (%) Risk index Liquidity index 1 7.6 8.6 4.4 2 7.4 7.4 3.8 3 3.0 3.9 7.7 4 5.1 6.6 8.0 5 1.5 1.7 1.9 Table 1: risk, return and liquidity characteristics of five securities Suppose that you wish to use these data to estimate the following regression model Yi = Bo + B1Xi1 + B2Xi2 + Ui For i = 1, ...,5, where Yi is return, Xi1 is risk index and Xi2 is the liquidity index for security i. Suppose that you have just started your first job as a junior investment analyst at a hedge fund. You have the data on average annual returns (yield), risk and liquidity levels for the following #five securities (e.g Bonds): Security # Return (%) Risk index Liquidity index 1 7.6 8.6 4.4 2 7.4 7.4 3.8 3 3.0 3.9 7.7 4 5.1 6.6 8.0 5 1.5 1.7 1.9 Table 1: risk, return and liquidity characteristics of five securities Suppose that you wish to use these data to estimate the following regression model Yi = Bo + B1Xi1 + B2Xi2 + Ui For i = 1, ...,5, where Yi is return, Xi1 is risk index and Xi2 is the liquidity index for security