George believes that returns of mutual funds are influenced by annual turnover rates and annual expense ratios. In order to substantiate his claim, he randomly selects eight mutual funds and collects data on each fund’s five-year annual return (Return), its annual holding turnover rate (Turnover), and its annual expense ratio (Expense). The entire data set, labeled Turnover_Expense, can be found on the text website.

a. Estimate Return = β0 + β1Turnover + β2Expense + ε. Conduct appropriate tests to verify George’s theory at the 5% significance level.
b. Discuss the potential problems of multicollinearity and changingvariability.

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Return(%) Turnover (%) Expense (96) American Funds EuroPacific Artisan International 6.06 41 0.83 2.94 54 1.22 Royce Value Plus 1.48 42 1.48