An investment analyst wants to examine the relationship between a mutual fund’s return, its turnover rate, and its expense ratio. She randomly selects 10 mutual funds and estimates:
Return = ß0 + ß1Turnover + ß2Expense + e, where Return is the average five-year return , Turnover is the annual holdings turnover (in %), Expense is the annual expense ratio (in %), and e is the random error component. A portion of the regression results is shown in the accompanying table.
|
df |
SS |
MS |
F |
|
|
Regression |
2 |
93.33 |
46.67 |
4.90 |
|
Residual |
7 |
66.69 |
9.53 |
|
|
Total |
9 |
160.02 |
||
|
Coefficients |
Standard Error |
t-stat |
p-value |
|
|
Intercept |
30.60 |
4.30 |
7.12 |
0.000 |
|
Turnover |
0.13 |
0.06 |
2.23 |
0.061 |
|
Expense |
0.90 |
4.08 |
0.22 |
0.831 |
a. Predict the return for a mutual fund that has an annual holdings turnover of 60% and an annual expense ratio of 1.5%.
b. Interpret the slope coefficient for the variable Expense.
c. Calculate the standard error of the estimate.
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