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Please show all your work on paper! Thank you! 1. Suppose we test for return predictability in a stock, and get the regression equation below.

image text in transcribed Please show all your work on paper! Thank you!

1. Suppose we test for return predictability in a stock, and get the regression equation below. Suppose rt = 0.02. Compute the one step and two step ahead return forecasts, i.e. Er(rt+1) and Ef(rt+2). rt+1 = 0.01 + 0.05r4 ++1

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