An Investor Is Considering Two Types of Investment

question 6

Essay

An investor is considering two types of investment. She is quite satisfied that the expected return on investment 1 is higher than the expected return on investment 2. However, she is quite concerned that the risk associated with investment 1 is higher than that of investment 2. To help make her decision, she randomly selects seven monthly returns on investment 1 and 10 monthly returns on investment 2. She finds that the sample variances of investments 1 and 2 are 225 and 118, respectively.
Can she infer at the 5% significance level that the population variance of investment 1 exceeds that of investment 2?

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Definitions:

Basic Unit

The simplest, most fundamental component or element of a system or structure.

Zygote

The initial cell formed when a new organism is produced by sexual reproduction, resulting from the fusion of two gametes.

Meiosis

A type of cell division that results in four daughter cells, each with half the number of chromosomes of the parent cell, essential for sexual reproduction.

Neurogenesis

The process of generating new neurons, which occurs in certain regions of the brain throughout life.