We are studying a mutual bond fund for the purpose of investing in several funds

Question

We are studying a mutual bond fund for the purpose of investing in several funds. For this particular study, we want to focus on the assets of a fund and its 5 year performance. The question is: Can the 5 year rate of return be estimated based on the assets of the fund? 9 mutual funds were selected at random, and their assets and rates of return are shown below:


Fund Assets(in millions) Return(%)
AARP 622.2 10.8
Babson Bond L 160.4 11.3
Compass Capital Fixed Income 275.7 11.4
Galaxy Bond Retail 433.2 9.1
Keyston Custodian B-1 437.9 9.2
MFS Bond A 494.5 11.6
Nichols Income 158.3 9.5
T. Row Price Short-Term 681.0 8.2
Thompson Income B 241.3 6.8

Draw a scattergram. Compute the correlation coefficient. Compute the coefficient of determination. Determine the regression equation. Use assets as the independent variable. For a fund of 400 million in sales, determine the 5 year rate of return in %.

Explanation / Answer

I will use the method of using a TI graphing calculator to find these values. Make sure that the Diagnostic is on: to do this, push 2nd, then 0. then scroll down to diagnosticOn and push enter, it should say done. Then do the following: First, under the Stat button, go to edit. In list 1 i type in the assets listed. In list 2 i type in the return percentage. Then i go to Stat, over to Calc, then i do a LinReg. Now, the values of r and r^2 pop up. r=-.0461 and r^2=.002121. The regression equation also is shown, and it is: y=9.91983-.000393334x

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