TABLE 13-7
an Investment Specialist Claims That If One Holds

question 68

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 appropriate null and alternative hypotheses are, respectively,

• A) \( H_{0}: r \leq 0 \) versus \( H_{1}: r>0 \).
• B) \( H_{0}: r \geq 0 \) versus \( H_{1}: r<0 \).
• C) \( H_{0}: \rho \geq 0 \) versus \( H_{1}: \rho<0 \).
• D) \( H_{0}: \rho \leq 0 \) versus \( H_{1}: \rho>0 \).

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Definitions:

Disbursement of Funds

The act of paying out money from a fund or account to cover expenses or investments.

Collateral Position

Collateral is property or assets that a borrower offers to a lender as security for a loan, which can be taken by the lender if the borrower fails to repay.

Stretching Payables

Paying invoices after they’re due according to the terms of sale. Also called leaning on the trade.

Short-term Loans

Loans that are scheduled for repayment within a short timeframe, usually less than one year.