Question

7.7 Average quarterly return. A stockbroker determines the short-run direc-
tion of the market using the average quarterly return of stock mutual funds. He
believes the next quarter will be profitable when the average is greater than 1%.
He will get complete quarterly return information soon, but right now he has data
from a random sample of 30 stock funds. The mean quarterly return in the sample
is 1.5%, and the standard deviation is 1.9%. Based on this sample, test to see if
the broker will feel the next quarter will be profitable.
(a) State appropriate null and alternative hypotheses. Explain how you decided
between the one- and two-sided alternatives.
(b) Find the t statistic, degrees of freedom, and P-value. State your conclusion
using the 5 0.05 significance level.

Answer 1

There is sufficient evidence to support the belief that the next quarter will be profitable when the average is greater than 1%.