Question: Suppose that rt follows the model rt = rt1 + at 0.9at1, and we have r101 = 1.2 and r100 (1) = 1.0, where rt(1)

Suppose that rt follows the model rt = rt1 + at 0.9at1, and we have r101 = 1.2 and r100 (1) = 1.0, where rt(1) denotes the 1 step ahead prediction of rt+1 at the forecast origin t. Compute r101(1)

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