Price Earnings
a Comparison of the Price-Earnings (P/E)ratio for the Top

question 132

Short Answer

Price earnings
A comparison of the price-earnings (P/E)ratio for the top and bottom 100 companies in valuation is being prepared.A financial advisor randomly sampled each group to determine whether there is any difference in P/E ratios of the two groups of companies.Let 1 = a top 100 company and 2 = a bottom 100 company.Assume equal population variances and that the populations are normally distributed.The advisor is to use a 0.01 significance level.The data were randomly selected and are summarized below: $$\begin{array} { | c | c | } \hline \text { Top 100 company } & \text { Bottom 100 company } \\\hline n _ { 1 } = 6 & n _ { 2 } = 6 \\\bar { x } _ { 1 } = 18.83 & \bar { x } _ { 2 } = 10.67 \\s _ { 1 } ^ { 2 } = 128.17 & s _ { 2 } ^ { 2 } = 8.67 \\\hline\end{array}$$
-What is the value of the test statistic?
Appropriate test: ____________________
Test statistic = ____________________

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Definitions:

CPI

The Consumer Price Index, through a weighted average method, evaluates how the prices of a varied mix of consumer services and goods, such as medical care, food, and transportation, change over time.

Salary

Predetermined, regular payment made by an employer to an employee, often expressed as an annual sum.

Consumer Price Index

A metric that quantifies the average shift over time in the costs that urban residents incur for a specified set of consumer goods and services.

CPI

Consumer Price Index; a measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food, and medical care.