Question

6–66. Tradepoint, the electronic market set up to compete with the London Stock
Exchange, is losing on average $32,000 per day. A potential long-term financial partner
for Tradepoint needs a confidence interval for the actual (population) average daily
loss, in order to decide whether future prospects for this venture may be profitable.
In particular, this potential partner wants to be confident that the true average loss at
this period is not over $35,000 per day, which it would consider hopeless. Assume the
$32,000 figure given above is based on a random sample of 10 trading days, assume
a normal distribution for daily loss, and assume a standard deviation of s $6,000.
Construct a 95% confidence interval for the average daily loss in this period. What
decision should the potential partner make?

Answer 1

6-66

Suppose, random variable X denotes the amount of loss.

So,

Based on the given data we have,

We know,

So, 95% confidence interval is given by

Loss of $35000 is contained in the 95% confidence interval.

So, the potential partner will decide against investment in the stock exchange.