A Portfolio Manager Claims That the Mean Annual Return on One

question 96

Essay

A portfolio manager claims that the mean annual return on one of the mutual funds he manages exceeds 8%. To substantiate his claim, he states that over the past 10 years, the mean annual return for the mutual fund has been 9.5% with a sample standard deviation of 1.5%. Assume annual returns are normally distributed.
A) Specify the competing hypotheses to test the portfolio manager's claim.
B) Calculate the value of the test statistic.
C) At the 5% significance level, use the p-value approach to state the decision rule.
D) Is the portfolio manager's claim substantiated by the data? Explain.

• A) Specify the competing hypotheses to test the portfolio manager's claim.
• B) Calculate the value of the test statistic.
• C) At the 5% significance level, use the p-value approach to state the decision rule.
• D) Is the portfolio manager's claim substantiated by the data? Explain.

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Definitions:

Cash Flow

The total amount of money being transferred into and out of a business, determining its liquidity, operational efficiency, and financial health.

Cash-Flow Statement

A financial statement that provides aggregate data regarding all cash inflows a company receives from its ongoing operations and external investment sources, as well as all cash outflows that pay for business activities and investments during a given period.

Service Policies

Guidelines and procedures established by a business concerning the delivery of its services to customers.

Sales Force

The Sales Force consists of a group of employees focused on sales operations, whose primary responsibilities include promoting, selling, and securing orders from existing and prospective customers.