Question: 3. Suppose r, is such that It = Bo+ dot + at, of = 1 + 0.507-1. Here, {et}'s are i.i.d. N(0, 1) random variables

3. Suppose r, is such that It = Bo+ dot +

3. Suppose r, is such that It = Bo+ dot + at, of = 1 + 0.507-1. Here, {et}'s are i.i.d. N(0, 1) random variables and of is the positive square-root of o? . Note the existence of volatility in the mean of r. Such a model is called GARCH-M (GARCH in the mean). Assume that Bo = 0.06 and 6 = 0.22. . What is E(rt | at-1 = 0.6)? . What is Var(rt | at-1 = 0.6)? . What is the conditional distribution of r given at-1 = 0.6

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