Question: 5 . Suppose we are estimating a model for the return on a bond r _ t of the form, r _ t =

5. Suppose we are estimating a model for the return on a bond r_t of the form, r_t=\gamma _0+\gamma _1 r_t-1+u_t where u_t is an error term (a) Explain the difference between the conditional variance and the unconditional variance of r. Which of the two is more relevant for financial decision making?

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