Question
You are an investment analyst, and your task is to assess the relationship between risk and yields for various investment funds. You have compiled data
You are an investment analyst, and your task is to assess the relationship between risk and yields for various investment funds. You have compiled data on returns and riskiness of 30 large investment funds, using 5-year averages for returns (after fees) and risk (measured by standard deviations of the returns).
Investment Fund | Return (5-year average) | St.Dev (5-year average) |
1 | 0.55% | 2.70% |
2 | 0.92% | 2.25% |
3 | 3.45% | 1.37% |
4 | 1.50% | 1.42% |
5 | 2.10% | 2.64% |
6 | 1.75% | 3.83% |
7 | 4.20% | 5.51% |
8 | 3.71% | 5.15% |
9 | 4.62% | 5.62% |
10 | 5.10% | 5.23% |
11 | 4.44% | 5.92% |
12 | 5.31% | 7.34% |
13 | 5.62% | 5.98% |
14 | 6.36% | 8.14% |
15 | 6.31% | 8.32% |
16 | 5.41% | 7.69% |
17 | 5.37% | 8.78% |
18 | 7.54% | 8.90% |
19 | 5.09% | 10.02% |
20 | 6.65% | 8.04% |
21 | 7.04% | 10.02% |
22 | 6.28% | 10.99% |
23 | 7.82% | 11.51% |
24 | 7.10% | 11.30% |
25 | 6.95% | 12.40% |
26 | 8.73% | 11.24% |
27 | 7.55% | 10.99% |
28 | 8.64% | 11.94% |
29 | 7.68% | 12.15% |
30 | 9.28% | 13.26% |
a. Compute the least squares regression equation, using return as the dependent variable and standard deviation as the independent variable. Interpret the results. (5 marks) b. Use the 95% confidence level to show where we should expect the relationship to stand at this level of certainty. (5 marks) c. Which fund did the best compared with the expected (predicted) result? Which one did the worst? Use residuals of the regression in your answer. (5 marks)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started