TABLE 13-7
an Investment Specialist Claims That If One

question 59

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.
$$\begin{array} { l c c c c } \hline & \text { Coefficients } & \text { Standard Error } & \text { T Stat } & { p \text {-value } } \\\hline \text { Intercept } & 4.866004258 & 0.35743609 & 13.61363441 & 8.7932 \mathrm { E } - 13 \\\text { S\& P } & - 0.502513506 & 0.071597152 &- 7.01862425 & 294942 \mathrm { E } - 07 \\\hline\end{array}$$
-Referring to Table 13-7, to test whether the prison stocks portfolio is negatively related to the S&P 500 index, the p-value of the associated test statistic is

• A) 8.7932E- 13.
• B) 2.94942E- 07.
• C) (2.94942E- 07)2.
• D) 2.94942E- 07/2.

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Definitions:

Analyzing Options

The process of evaluating a set of strategies or choices to determine the most advantageous course of action.