Suppose That We Wanted to Sum the 2007 Returns on Ten

question 10

Multiple Choice

Suppose that we wanted to sum the 2007 returns on ten shares to calculate the return on a portfolio over that year. What method of calculating the individual stock returns would enable us to do this?

• A) Simple
• B) Continuously compounded
• C) Neither approach would allow us to do this validly
• D) Either approach could be used and they would both give the same portfolio return

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Definitions:

P-Value

A statistical measure that helps scientists determine the significance of their research results; a low p-value indicates strong evidence against the null hypothesis.

Binomial Distribution

A probability distribution that summarizes the likelihood that a variable will take one of two independent values under a given number of observations.

Significance Level

A statistical term that quantifies the probability of rejecting the null hypothesis when it is actually true, typically expressed as a percentage or decimal.

Expected Frequency

The predicted count of occurrences for a particular category or event in a statistical distribution, based on a theoretical probability.