1) An analyst believes that the only important determinant of banks' returns on assets (Y) is

the ratio of loans to deposits (X). For a random sample of 20 banks, the sample regression

line

y = 0.97 + 0.47x was obtained with coefficient of determination 0.720.

a) What is the effect on returns of asset if ratio of loans to deposits decrease by 0.5?

b) Is there any way to improve this model?

c) What is the predicted returns on assets if ratio of loans to deposits is 0.75