8. The following table gives the annual return, the safety rating (0 = riskiest, 10 = safest), and the annual expense ratio for 20 foreign funds (Mutual Funds, March 2000). Fund Safety Rating Annual Expense Ratio (%) Annual Return (%) Accessor Int'l Equity "Adv" Aetna "I" International Amer Century Int'l Discovery "Inv" Columbia International Stock Concert Inv "A" Int'l Equity Dreyfus Founders Int'l Equity "F" Driehaus International Growth Excelsior "Inst" Int'l Equity Julius Baer International Equity Marshall International Stock "Y" MassMutual Int'l Equity "S" Morgan Grenfell Int'l Sm Cap "Inst" New England "A" Int'l Equity Pilgrim Int'l Small Cap "A" Republic International Equity Sit International Growth Smith Barney "A" Int'l Equity State St Research "S" Int'l Equity Strong International Stock Vontobel International Equity 700290 77676767677777767767 7.1 1.59 7.2 1.35 6.8 1.68 7.1 1.56 6.2 2.16 131 7.4 1.80 6.5 1.88 7.0 0.90 6.9 1.79 7.2 1.49 7.1 1.05 7.7 1.25 7.0 1.83 7.0 1.94 122 7.2 1.09 6.9 1.50 7.0 1.28. 7.1 1.65 6.5 1.61 7.0 1.50 8888888824 49 52 89 58 59 99 53 77 54 57 61 71 51 60 50 93 47

a. Develop an estimated regression equation relating the annual return to the safety rat- ing and the annual expense ratio.

b. Estimate the annual return for a firm that has a safety rating of 7.5 and annual expense ratio of 2.