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:

Zinnias

Brightly colored flowers, belonging to the sunflower tribe within the daisy family, known for their long-lasting blooms and variety in size and color.

Utility Function

An economic model that maps an individual's preference rankings for various bundles of goods onto a set of numerical values.

Price

The financial value anticipated, necessitated, or offered in return for a service or good.

Income

Money received on a regular basis from work, property, business, investment, or welfare.