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Consider the following model that a researcher suggests might be a reasonable model of stock market prices: Yt=0.5Yt1+t, wheret is a white noise process with

Consider the following model that a researcher suggests might be a reasonable model of stock market prices:

Yt=0.5Yt1+t, wheret is a white noise process with a variance =22.

a. Is the above model stationary?(2 points)

b. Find the variance of the above model. AssumeYt(,2y)

c. Find(Yt,Yt1),(Yt,Yt2)? What do you observe about this process?(5 points)

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