Question

A research analyst is examining a stock for possible inclusion in his client's portfolio. Over a 17-year period, the sample mean and the sample standard deviation of annual returns on the stock were 18% and 15%, respectively. The client wants to know if the risk, as measured by the standard deviation, differs from 17%. (You may find it useful to reference the appropriate table: chi-square table or F table)

a. Construct the 95% confidence intervals for the population variance and the population standard deviation. (Round intermediate calculations to at least 4 decimal places and final answers to 2 decimal places.)

b. What assumption did you make in constructing the confidence intervals? Annual return is not necessarily normally distributed. Annual return is normally distributed

c. Based on the above confidence intervals, can we state that the risk differs from 17%?

Yes, since the confidence interval does not include the hypothesized value.

No, since the confidence interval includes the hypothesized value.

No, since the confidence interval does not include the hypothesized value.

Yes, since the confidence interval includes the hypothesized value.

Answer 1