Question: 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 (

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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