Solution) Sample Number Assets ($ millions) Return (%) 1 AARP

Question:

Sample Number		Assets ($ millions)	Return (%)
1	AARP	622.2	10.8
2	Babson	160.4	11.3
3	Compass	275.7	11.4
4	Galaxy	433.2	9.1
5	Keystone	437.9	9.2
6	MFS Bond A	494.5	11.6
7	Nichols	158.3	9.5
8	T Rowe	681	8.2
9	Thompston	241.3	6.8

The table above contains data from 9 mutual funds -- total assets held by the fund and last year's return on the investment of the assets (cash). Please:

(1) Construct a scatter diagram -- be sure you choose the correct dependent and independent variable. Think about these questions: Which variable influences the other? What is the direction of the relationship? Do assets influence the return or does the return influence the assets? What you choose as the "causing" variable will be X, what you choose as the variable being "caused" or influenced will be Y. Discuss your diagram.

(2) Compute the coefficients of correlation and determination and discuss what they mean.

(3) Test the significance of the sample correlation computed in #2.

(4) Develop a regression equation. What return would you predict for $400M in assets? Is the regression equation you developed meaningful? Why or why not?

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Solution) Sample Number Assets ($ millions) Return (%) 1 AARP

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