Question

An investor is trying to decide whether to invest in a given stock, but is worried about the volatility of the investment. If the investor is very certain that the volatility (as measured by the standard deviation) is greater than 15% then the investor will choose a different investment option. In a sample of the previous 101 days reveals that the standard deviation of the investment is 20%. When testing the hypothesis (at the 1% level of significance) that the standard deviation is higher than 15% (or variance is greater than 225), what is the critical value? (please round your answer to 2 decimal places)

Answer 1

Given,

Sample size(n)=101

Degrees of freedom (df)=n-1=101-1=100

And

Level of significance=1%=0.01

Hence,

Using critical value calculator,

Hence,

Required critical value=135.81

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