Question

An investment advisor believes that the proportion of investors who are risk–averse (i.e., trying to avoid risk in their investment decisions) is greater than 0.7. A survey of 23 investors found that 20 of them were risk-averse. Formulate and test the appropriate hypotheses to determine whether his belief can be confirmed (significance level of 5%).

Answer 1

SOLUTION:

From given data,

The proportion of investors who are risk–averse is greater than 0.7. A survey of 23 investors found that 20 of them were risk-averse.

Hypothesis,

  

  

significance level of 5% = 0.05

P-value = P(z < 1.769)

= 0 .038447

The result is significant at p < .05.

We reject the null hypothesis .