An Investor Would Like to Compare the Volatility (Variance) of the Returns

question 46

Multiple Choice

An investor would like to compare the volatility (variance) of the returns on international bonds to that of domestic bonds.A random sample of 10 international bonds (from population 1) has average returns of 5.2 percent with a standard deviation of 3.2 percent.A random sample of 10 domestic bonds (from population 2) has average returns of 3.6 percent with a standard deviation of 1.2 percent.The investor assumes that bond returns follow a normal distribution in both populations. She uses the data to test the following hypotheses:
H₀: σ₁² = σ₂² (the population variances are equal)
H_A: σ₁² ≠ σ₂² (the population variances are not equal)
What is the value of the test statistic, F_stat?

• A)1.44
• B)2.67
• C)7.11
• D)10.24

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