TABLE 13-7 An Investment Specialist Claims That If One Holds a Portfolio

question 167

Multiple Choice

TABLE 13-7
An investment specialist claims that if one holds a portfolio that moves in the opposite direction to the market index like the S&P 500, then it is possible to reduce the variability of the portfolio's return. In other words, one can create a portfolio with positive returns but less exposure to risk.
A sample of 26 years of S&P 500 index and a portfolio consisting of stocks of private prisons, which are believed to be negatively related to the S&P 500 index, is collected. A regression analysis was performed by regressing the returns of the prison stocks portfolio (Y) on the returns of S&P 500 index (X) to prove that the prison stocks portfolio is negatively related to the S&P 500 index at a 5% level of significance. The results are given in the following Excel output.

Note: 2.94942E-07 = 2.94942*10⁻⁷
-Referring to Table 13-7, which of the following will be a correct conclusion?

• A) You cannot reject the null hypothesis and, therefore, conclude that there is sufficient evidence to show that the prisons stock portfolio and S&P 500 index are negatively related.
• B) You can reject the null hypothesis and, therefore, conclude that there is sufficient evidence to show that the prisons stock portfolio and S&P 500 index are negatively related.
• C) You cannot reject the null hypothesis and, therefore, conclude that there is insufficient evidence to show that the prisons stock portfolio and S&P 500 index are negatively related.
• D) You can reject the null hypothesis and conclude that there is insufficient evidence to show that the prisons stock portfolio and S&P 500 index are negatively related.

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Definitions:

Meganational Strategy

A business strategy that emphasizes operating and competing in multiple countries as if they were a single global market.

Capital Investments

Expenditures by a company to acquire or upgrade physical assets such as property, industrial buildings, or equipment.

Personal Control

The use of frequent human interaction to enforce control.

Normative Control

Control that gets subunits to adhere to the values of the organization.