It is possible to derive returns of many periodicities from returns of one periodicity. Suppose that we have estimated the following fundamental factor model using daily data:

Let us denote the estimates by , f, and ²

(a) What would be the expected daily return and the variance of the daily return?

(b) Assuming that error is serially uncorrelated over time, what would be the expected weekly return and the variance of the weekly return?

(c) Under the same assumption as in part (b), what would be the expected monthly return and the variance of the monthly return?

(d) Is the assumption made in parts (b) and (c) realistic?