Question

14.22 Tax Efficiency. Tax efficiency is a measure ranging from 0 to 100 - of how much tax due to capital gains stock or mutual funds investors pay on their investments each year, the higher the tax efficiency, the lower the tax. The paper "At the Mercy of the Manager" (Financial Planning, Vol. 30(5), pp. 54-56 ) by C. Israelsen examined the relationship between investments in mutual fund portfolios and their associated tax efficiencies. The following table shows the percentage of investments in energy securities $\left(x\right)$and tax efficiency $\left(y\right)$for 10 mutual fund portfolios.

Short answer

The assumptions for regression inferences are visually displayed in the picture above, and they appear to be met.

Step-by-step solution

Given Information

Given table:

For regression by the variables under investigation, find the meeting assumptions 1-3.

Explanation

Constants ${\beta }_0,{\beta }_1,\text{and}\sigma$are such that each percentage investment in energy securities (x) has a normal distribution with the mean being ${\beta }_0+{\beta }_{1}x$and the standard deviation being $\sigma$.

Graphical representation:

Hence, the assumptions for regression inferences are visually displayed in the picture above, and they appear to be met.