Question

Portfolio A 5.23 10.91 12.49 4.17 5.54 8.68 7.89 9.82 9.62 4.93 11.66 11.49 Portfolio B 8.96 8.60 7.61 6.60 7.77 7.06 7.68 7.62 8.71 8.97 7.71 9.91 (1-a) Rates of return (annualized) in two investment portfolios are compared over the last 12 quarters. Click here for the portfolio data. Let μA be the mean average return for Portfolio A and μB be the mean average return for Portfolio B. You have been asked to test whether the two portfolios have equal average returns. Which of these represents the null and alternative hypotheses? (1-b) What is the test statistic, assuming α = 0.05? Round to 4 significant digits (1-c) What is the critical value at the α = 0.05 level? If there are two critical values, enter the positive one. If there is one critical value you need to make sure it has the correct sign depending on what type of test it is. Remember, Excel only provides positive values. Round to 4 significant digits. (1-d) What is the p-value? Round to 4 significant digits. (1-e)What is the highest degree of confidence that you can say the portfolios have a different population mean return? Moodle does not let me put % at the end, so if your answer is 95.06% you would type 95.06. Round to two decimal places.

Answer 1

a)

this is two-tailed

Ho : mu1- mu2 = 0

Ha: mu1 - mu2 <> 0

b)

c)

critical values = -2.160, 2.160

reject if < -2.160 or > 2.160

d)

p-value = P(t>|TS|) = 0.6313

e)

100 * (1- p-value) %

= 100 * ( 1- 0.6313) %

= 36.87 %

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