How do you know? Interpret the coefficient in terms of a $ 0 difference in per capita GNP. (4 points) (iv) Regress the infant mortality rate in 1997 on GNP per capita and the illiteracy rate in 1997. Please interpret the results. Is the coefficient of GNP per capita changed a lot from result (iii) ? Why or why not? (6 points) (v) Using the results from part i-iv, what can we say about the causal relationship between illiteracy, infant mortality, and income (GNP)? (25 points) 3.2 This question deals with the estimation of betas of the Capital Asset Pricing Model (CAPM), and it is a relatively straightforward application of a simple linear regression. Re = a + BRmt + ut Re is the expected return (return), Rmt is the market return (market). You are given data on monthly stock returns for 15 companies in 7 industries for the period from January 1978 to December 1987. They are: Industries Companies Oil Mobil (11) Texaco (14) Computers IBM (10) DEC (Digital Equipment Corporation) (6) DataGen (Data General) (5) Electric Utilities ConEd (Consolidated Edison) (3) PSNH (Public Service of New Hampshire) (13) Forest Products Weyer (Weyerhauser) (15) Boise (1) Airlines PanAm (Pan American Airways) (12) Delta (7) Banks Contil (Continental Illinois) (4) Citcrp (Citicorp) (2) Foods Gerber (9) GenMil (General Mills) (8) Table 1: Companies in the dataset capm3.dta These data are contained in the file capm3.dta. The file also contains in- formation on the market monthly return (market, a value-weighted average of returns on stocks listed on the New York Stock Exchange) and information on the risk-free rate of return (return, the return on 30-day U.S. Treasury Bills). The stock and market returns in the file are excess returns over the risk-free rate of return. From the list of industries, choose Mobil from industry of Oil (compara- tively highly "risky") and ConEd from the industry of Electric Utilities (rela- tively "safe") (Hint: The variable ncomp runs from 1 to 15 and identifies the company in each observation, while the corresponding number for each com- pany is listed in the table in the paranthesis). You can use the subset on R commands to choose sample and run the regression with. For example, Mobil