Question

Mutual funds are classified as load or no-load funds. Load funds require an investor to pay an initial fee based on a percentage of the amount invested in the fund. The no-load funds do not require this initial fee. Some financial advisors argue that the load mutual funds may be worth the extra fee because these funds provide a higher mean rate of return than the no-load mutual funds. A sample of 30 load mutual funds and a sample of 30 no-load mutual funds selected for analysis are contained in the Excel Online file below. Data were collected on the annual return for the funds over a five-year period. Construct a spreadsheet to answer the following questions.

Level of Significance 0.05

Mutual Funds - Load	Load Return		Mutual Funds - No Load	No Load Return
American National Growth	16.91		Amana Income Fund	11.24
Arch Small Cap Equity	14.37		Berger One Hundred	10.13
Bartlett Cap Basic	18.13		Columbia International Stock	10.17
Calvert World International	11.21		Dodge & Cox Balanced	14.06
Colonial Fund A	15.03		Evergreen Fund	15.61
Common Sense Growth	15.04		Fidelity Fund	18.61
Corefund Core Equity	20.37		Forthis Advtg Cap App	11.38
Davis Convert Seurities	18.11		Founders Blue Chip Fund	15.15
Deleware Small Cap	18.57		Goldman Core Fixed Income	8.38
Dreyfus Premium Value	12.15		Heartland Value	16.15
Federated Stocks & Bonds	14.91		Janus Fund	13.82
First Invest FD for Income	14.14		Manstay Cap Appriciation	15.29
Flag Inv Emerging Growth	14.39		Merrill Spec Value	14.42
Fortis Equity Capital	11.46		Mutual Beacon	17.49
FPA Capital	22.96		Oberweis Emerging Growth	9.06
Franklin STR GL UT	19.28		Paine Webber Growth & Income	11.89
Gabelli Value Fund	21.45		Pimco Total Return	6.43
IDS New Dimensions	19.58		Prudential Equity	16.29
John Hancock Growth & Income	17.06		Putnam Growth & Income	15.80
Lord Abbett Dev Growth	22.45		Royce FD Micro-Cap	15.05
Merrill Basic Value	21.55		Scudder Development	10.80
MFS World Tot Return	11.59		Smith Barney Appreciation	13.09
New England Growth Opp	17.96		Stein Roe Capital Oppty	17.70
Oppenhmr Quest Small Cap	15.57		T Rowe Price Balanced	11.57
Phoenix Worldwide	14.98		Thompson Plumb Growth	16.58
Princor Bond	6.40		USAA Growth & Tax Strat	9.89
Stagecoach Disd Income	17.12		Vanguard Equity Income	17.00
United Contl Income	11.49		Vanguard Windsor	18.71
Victory OH Regional	19.64		Vontobel Intl Equity	11.56
Zweig SR TR Apprec	14.00		Weith Value	17.82

a. Formulate  and  such that rejection of  leads to the conclusion that the load mutual funds have a higher mean annual return over the five-year period.

_________<>≤≥=≠
_________<>≤≥=≠

b. Use the 60 mutual funds in the table above to conduct the hypothesis test. What is the -value?

p-value is _____ (to 4 decimals)

At , a = 0.05, what is your conclusion?

________ conclude that the mutual funds with a load have a greater mean rate of return.

Answer 1

a) Let uL be the average return for the load mutual fund and uNL be the average load for the no-load mutual fund

Ho: uL< = uNL

Ha: uL > uNL

b) ( Using Excel )

t-Test: Two-Sample Assuming Unequal Variances
	Load	No load
Mean	16.26233333	13.70467
Variance	14.97787368	10.98725
df	57
t Stat	2.749219419
P(T<=t) one-tail	0.003994196
t Critical one-tail	1.672028889

p-value = 0.003994196

As p-value is less than 0.05

so we reject the null hypothesis

Thus mutual fund with load have higher average return than a mutual fund with no load