Investment Institutions Usually Have Funds with Different Risk Versus Reward

question 48

Multiple Choice

Investment institutions usually have funds with different risk versus reward prospectuses. A trading magazine wants to determine if the returns of high-risk funds is greater than low-risk funds. The magazine records the return of high- and low-risk funds for a sample of 22 institutions. For the Wilcoxon signed-rank test, where D = high-risk return − low-risk return, the value of the test statistic is T = T⁺ = 185. Using the p-value approach and α = 0.10, the appropriate conclusion is ________.

• A) to reject the null hypothesis; we can conclude the median difference of the returns is greater than zero
• B) to reject the null hypothesis; we cannot conclude the median difference of the returns is greater than zero
• C) do not reject the null hypothesis; we cannot conclude the median difference of the returns is greater than zero
• D) do not reject the null hypothesis; we can conclude the median difference of the returns is greater than zero

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Definitions:

Zero Profits

Zero profits, or normal profit, occur when a company's total revenues exactly match total costs, leaving no net profit or loss.

Net Present Value

A financial metric that calculates the difference between the present value of cash inflows and outflows over a period of time.

Interest Rate

The proportion of a loan charged as interest to the borrower, typically expressed as an annual percentage of the loan outstanding.

Break Even

Break even refers to the point at which total revenues equal total costs, meaning that a business or project is neither losing nor making money.