B. [16 points] In order to estimate the market risk for Google, I have estimated the following market model, ri=a+Brmt + & where r is Google's monthly return and rmt is the monthly market return. Let X = [1 rm], and Y=[r] be matrix and vector of monthly returns, with the following information: first row of XX matrix is [60 3], first row of XY matrix is [6], and YY is 2.5. In the following table, I report the OLS estimates for the whole sample. (TSS: total sum of square; RSS: residual sum of square) Model: Unconstrained Model Constrained Model (a=0) Variable Coefficient Std (SB) t-ratio Coefficient Std. Error 0.042 0.02 ? 1.2 ? 6.0 0.08 a 1.33 R? TSS RSS # of obs. n ? ? 1.14 ? 1.2 (1) [4 points) How many observations are? What is the average monthly market return? 5 Name Page 6 (2) [3 points] Test the hypothesis Ho: a = 0. What is the standard error for the B estimator? (3) [5 points] Find TSS and R. [hint: TSS = YY-n (mean of Y)?] (4) [4 points] Impose the constraint of a = 0 and re-estimate the using OLS. Using the F test to see if a=0? B. [16 points] In order to estimate the market risk for Google, I have estimated the following market model, ri=a+Brmt + & where r is Google's monthly return and rmt is the monthly market return. Let X = [1 rm], and Y=[r] be matrix and vector of monthly returns, with the following information: first row of XX matrix is [60 3], first row of XY matrix is [6], and YY is 2.5. In the following table, I report the OLS estimates for the whole sample. (TSS: total sum of square; RSS: residual sum of square) Model: Unconstrained Model Constrained Model (a=0) Variable Coefficient Std (SB) t-ratio Coefficient Std. Error 0.042 0.02 ? 1.2 ? 6.0 0.08 a 1.33 R? TSS RSS # of obs. n ? ? 1.14 ? 1.2 (1) [4 points) How many observations are? What is the average monthly market return? 5 Name Page 6 (2) [3 points] Test the hypothesis Ho: a = 0. What is the standard error for the B estimator? (3) [5 points] Find TSS and R. [hint: TSS = YY-n (mean of Y)?] (4) [4 points] Impose the constraint of a = 0 and re-estimate the using OLS. Using the F test to see if a=0