SCENARIO 12-7
an Investment Specialist Claims That If One Holds

question 161

Multiple Choice

SCENARIO 12-7
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. $$\begin{array} { l r r r r } \hline & \text { Coefficients } & { \text { StandardError } } & { \text { T Stat } } & { P \text {-value } } \\\hline \text { Intercept } & 4.8660 & 0.3574 & 13.6136 & 0.0000 \\\text { S\&P } & - 0.5025 & 0.0716 & - 7.0186 & 0.0000 \\\hline\end{array}$$
-Referring to Scenario 12-7, to test whether the prison stocks portfolio is negatively related to the S&P 500 index, the measured value of the test statistic is

• A)-7.019
• B)-0.503
• C)0.072
• D)0.357

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Definitions:

Vertical Contracts

Agreements between companies at different levels of the supply chain, such as between a manufacturer and a retailer, to govern the terms of purchase and sale.

Manufacturer's Belief

The perceptions or convictions held by manufacturers regarding the market, product quality, or the effectiveness of production processes.

Retailers

Retailers are businesses or individuals that purchase goods from manufacturers or wholesalers and sell them directly to consumers.

Promotional Activities

Marketing efforts intended to increase awareness or sales of a product or service, often through discounts or advertising.