Question

1. Suppose we additionally collected information on variance of the return (risk) for the same year. We would like to know if stock return and risk are independent of each other. We modify the above table as follows:

   	Return
   Risk	Low	Average	High	Total
   Low	100	225	25	350
   High	25	50	75	150
   Total	125	275	100	500

   What is the expected frequency for the stocks with high return and low risk?

   		40
   		50
   		60
   		70

2 points   

QUESTION 7

1. To answer this question, refer to Exhibit 2 in question 6.

   What is the test statistic for this test (to 2 decimal places)?

   		115.45
   		120.67
   		135.89
   		142.53

2 points   

QUESTION 8

1. To answer this question, refer to Exhibit 2 in question 6.

   How many degrees of freedom we have for this test?

   		1
   		2
   		3
   		4

2 points   

QUESTION 9

1. To answer this question, refer to Exhibit 2 in question 6.

   At a level of significance of 0.05, what is your conclusion?

   		The null hypothesis that stock return and risk are independent cannot be rejected.
   		The null hypothesis that stock return and risk are independent can be rejected.
   		Need more information.

2 points   

QUESTION 10

1. To answer this question, refer to Exhibit 2 in question 6.

   According to the economic theory, what do you expect the relationship between risk and return?

   		Positive
   		Negative
   		No relationship
   		Need more information

Answer 1