# solution

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 = ÃŸ0 + ÃŸ1Turnover + ÃŸ2Expense + 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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