Question

Colonial Funds claims to have a bond fund which has performed consistently throughout the past year. The variance of the share price is claimed to be 0.160.16. To test this claim, an investor randomly selects 2121 days during the last year to check the performance of the fund. He finds an average share price of $6.80$⁢6.80 with a standard deviation of 0.25360.2536. Can the investor conclude that the variance of the share price of the bond fund is less than claimed at α=0.025α=0.025? Assume the population is normally distributed.

Step 2 of 5:

Determine the critical value(s) of the test statistic. If the test is two-tailed, separate the values with a comma. Round your answer to three decimal places.

Answer 1

To Test :-

H0 :-  

H1 :-  

Test Statistic :-

= ( ( 21-1 ) * 0.0643 ) / 0.16
= 8.0375

Test Criteria :-
Reject null hypothesis if   

Critical value   = 9.591

= 8.0375 < 9.591 , hence we reject the null hypothesis
Conclusion :- We Reject H0

There is sufficient evidence to support the claim that the variance of the share price of the bond fund is less than claimed.