In Exercise 4.58, you determined a regression equation that relates the variable's percentage of investments in energy securities and tax efficiency for mutual fund portfolios.

a. Should that regression equation be used to predict the tax efficiency of a mutual fund portfolio with 6.4% of its investments in energy securities? with 15% of its investments in energy securities? Explain your answers.

b. For which percentages of investments in energy securities is the use of the regression equation to predict tax efficiency reasonably?

Exercise 4.58

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 is the tax. In the article “At the Mercy of the Manager” (Financial Planning, Vol. 30(5), pp. 54–56), C. Israelsen examined the relationship between investments in mutual fund portfolios and their associated tax efficiencies. The following table shows percentage of investments in energy securities (x) and tax efficiency ( y) for 10 mutual fund portfolios. For part (g), predict the tax efficiency of a mutual fund portfolio with 5.0% of its investments in energy securities and one with 7.4% of its investments in energy securities.