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

question 74

Multiple Choice

An investor would like to compare the volatility (variance) of the returns on international bonds to the volatility of the return of domestic bonds.A random sample of 10 international bonds (population 1) have average returns of 5.2% with a standard deviation of 3.2%.A random sample of 10 domestic bonds (population 2) have average returns of 3.6% with a standard deviation of 1.2%.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)
At a 10% significance level, what is the conclusion of the hypothesis test?

• A)Since the test statistic is greater than the critical value of 3.179, reject the null hypothesis.The evidence supports the claim that the population variances differ.
• B)Since the test statistic is not greater than the critical value of 3.179, do not reject the null hypothesis.The evidence does not support the claim that the population variances differ.
• C)Since the test statistic is greater than the critical value of 3.179, reject the null hypothesis.The evidence does not support the claim that the population variances differ.
• D)Since the test statistic is greater than the critical value of 3.179, do not reject the null hypothesis.The evidence supports the claim that the population variances differ.

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Definitions:

No-Par Value Stock

Shares issued without a nominal or face value, where the market value of the shares is determined by the price investors are willing to pay.

Stated Value Stock

Stock issued with a nominal value assigned by the board of directors, which is not based on market value but affects the accounting equity.

Cost Method

An accounting method where investments are recorded at their acquisition cost, adjusting for any additional costs or impairments.

Market Value

The prevailing market price for acquiring or disposing of an asset or service.