TABLE 12-7 An Investment Specialist Claims That If One Holds a Portfolio

question 111

Multiple Choice

TABLE 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 Microsoft Excel output.

Note: 2.94942E-07 = 2.94942 * 10-7
-Referring to Table 12-7, which of the following will be a correct conclusion?

• A) You cannot reject the null hypothesis and, therefore, conclude that there is sufficient evidence to show that the prison stocks portfolio and S&P 500 Index are negatively related.
• B) You can reject the null hypothesis and, therefore, conclude that there is sufficient evidence to show that the prison stocks portfolio and S&P 500 Index are negatively related.
• C) You cannot reject the null hypothesis and, therefore, conclude that there is insufficient evidence to show that the prison stocks portfolio and S&P 500 Index are negatively related.
• D) You can reject the null hypothesis and conclude that there is insufficient evidence to show that the prison stocks portfolio and S&P 500 Index are negatively related.

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Definitions:

Hearing Loss

A partial or total inability to hear. It can occur in one or both ears and range from mild to severe.

Loud Noises

Intense auditory stimuli that can potentially cause hearing loss or stress, often considered undesirable or disruptive.

Color Vision Theories

The explanations and hypotheses that describe how the human eye perceives colors, including the trichromatic and opponent-process theories.

Trichromatic Theory

A theory of color vision that explains how humans perceive color through the response of three types of cones sensitive to different wavelengths.