Question

Socially conscious investors screen out stocks of alcohol and
tobacco makers, firms with poor environmental records, and
companies with poor labor practices. Some examples of "good,"
socially conscious companies are Johnson and Johnson, Dell
Computers, Bank of America, and Home Depot. The question is, are
such stocks overpriced? One measure of value is the P/E, or
price-to-earnings ratio. High P/E ratios may indicate a stock is
overpriced. For the S&P Stock Index of all major stocks, the
mean P/E ratio is *μ* = 19.4. A random sample of 36
"socially conscious" stocks gave a P/E ratio sample mean of
*x* = 17.6, with sample standard deviation *s* = 5.4.
Does this indicate that the mean P/E ratio of all socially
conscious stocks is different (either way) from the mean P/E ratio
of the S&P Stock Index? Use *α* = 0.05.

(a) What is the level of significance?

State the null and alternate hypotheses.

*H*_{0}: *μ* ≠ 19.4;
*H*_{1}: *μ* = 19.4 *H*_{0}:
*μ* > 19.4; *H*_{1}: *μ* =
19.4 *H*_{0}: *μ* =
19.4; *H*_{1}: *μ* < 19.4
*H*_{0}: *μ* = 19.4; *H*_{1}:
*μ* > 19.4 *H*_{0}: *μ* = 19.4;
*H*_{1}: *μ* ≠ 19.4

(b) What sampling distribution will you use? Explain the rationale
for your choice of sampling distribution.

The Student's *t*, since the sample size is large and
*σ* is unknown. The Student's *t*, since the sample
size is large and *σ* is known. The
standard normal, since the sample size is large and *σ* is
unknown. The standard normal, since the sample size is large and
*σ* is known.

What is the value of the sample test statistic? (Round your answer
to three decimal places.)

(c) Estimate the *P*-value.

*P*-value > 0.250 0.100 < *P*-value <
0.250 0.050 < *P*-value <
0.100 0.010 < *P*-value < 0.050 *P*-value <
0.010

Sketch the sampling distribution and show the area corresponding to
the *P*-value.

(d) Based on your answers in parts (a) to (c), will you reject
or fail to reject the null hypothesis? Are the data statistically
significant at level *α*?

At the *α* = 0.05 level, we reject the null hypothesis
and conclude the data are statistically significant. At the
*α* = 0.05 level, we reject the null hypothesis and conclude
the data are not statistically significant.
At the *α* = 0.05 level, we fail to reject the null
hypothesis and conclude the data are statistically significant. At
the *α* = 0.05 level, we fail to reject the null hypothesis
and conclude the data are not statistically significant.

Answer #1

To Test :-

*H*_{0}: *μ* = 19.4;
*H*_{1}: *μ* ≠ 19.4

Level of significance *α* =
0.05

The Student's *t*, since the sample size is large and
*σ* is unknown.

Test Statistic :-

t = -2.000

**P - value = P ( t > 2 ) = 0.0533**

0.050 < *P*-value < 0.100

Decision based on P value

P - value = P ( t > 2 ) = 0.0533

Reject null hypothesis if P value <
level of significance

P - value = 0.0533 > 0.05 ,hence we fail to reject null
hypothesis

Conclusion :- Fail to reject null hypothesis

At the *α* = 0.05 level, we fail to reject the null
hypothesis and conclude the data are not statistically
significant.

Socially conscious investors screen out stocks of alcohol and
tobacco makers, firms with poor environmental records, and
companies with poor labor practices. Some examples of "good,"
socially conscious companies are Johnson and Johnson, Dell
Computers, Bank of America, and Home Depot. The question is, are
such stocks overpriced? One measure of value is the P/E, or
price-to-earnings ratio. High P/E ratios may indicate a stock is
overpriced. For the S&P Stock Index of all major stocks, the
mean P/E ratio...

Socially conscious investors screen out stocks of alcohol and
tobacco makers, firms with poor environmental records, and
companies with poor labor practices. Some examples of "good,"
socially conscious companies are Johnson and Johnson, Dell
Computers, Bank of America, and Home Depot. The question is, are
such stocks overpriced? One measure of value is the P/E, or
price-to-earnings ratio. High P/E ratios may indicate a stock is
overpriced. For the S&P Stock Index of all major stocks, the
mean P/E ratio...

Socially conscious investors screen out stocks of alcohol and
tobacco makers, firms with poor environmental records, and
companies with poor labor practices. Some examples of "good,"
socially conscious companies are Johnson and Johnson, Dell
Computers, Bank of America, and Home Depot. The question is, are
such stocks overpriced? One measure of value is the P/E, or
price-to-earnings ratio. High P/E ratios may indicate a stock is
overpriced. For the S&P Stock Index of all major stocks, the
mean P/E ratio...

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