Please help me with the following question, there is only one option that is correct. Please also explain why is the option correct and other options are wrong.

QUESTION 3 An equity analyst hypothesizes that unexpected earnings has something to do with expected return on financial assets. Therefore, the analyst uses the following measure of earnings surprise to explain (expected) returns (for any company i): Standardized Unexpected Earnings,' (SUE = (Actual earingsi Expected earningsj) / standard deviation of earnings; where Actual earingsi Expected earnings,- indicates the amount of unexpected (or surprise in) earnings in a quarter or a year. [One way of calculating "Expected earnings" in the above is to use historical earnings data and other economic variables and to run regressions such as Earningsm = a+ b * Earningst_2 + c * Economic variables:.2 and use estimates of a, b and c to estimate Earnings: assuming that it is the same as E(Earningst). Using SUE, the analyst finds that following (for any company i): r,- - rf= by * Mkt_n' + s,- * SMB + h,- * HML + intercept; = b,' * Mktn' + s,' * SMB + h,- * HML + u,' * SUE,- where intercept,- is not zero and Mktrf, SMB and HML are FamaFrench three factors (FF3). Assume that there is no error in each variable and error (company level shock) is zero (= R2 in the above are all 100%). Which of the following statement(s) is CORRECT according to the above? i. Estimated SUE; can be negative. ii. According to the covariance view, SUE,- is expected to be positive. iii. According to the covariance View, 11; * SUE; is a systematic risk premium. 0 i, ii and iii 0 land ii 0 land iii 0