An Analyst Conducts a Hypothesis Test to Check Whether the Mean

question 100

Multiple Choice

An analyst conducts a hypothesis test to check whether the mean return for a particular fund differs from 10%.He assumes that returns are normally distributed and sets up the following competing hypotheses: H_o:μ = 10,H_A:μ ≠ 10 Over the past 10 years the fund has had an average annual return of 13.4% with a standard deviation of 2.6%.The value of the test statistic is 4.14 and the critical values at the 5% significance level are−2.262 and 2.262.The correct decision is to ____________________________________.

• A) reject H_o;we can conclude that the mean differs from 10%
• B) reject H_o;we cannot conclude that the mean differs from 10%
• C) not reject H_o;we can conclude that the mean differs from 10%
• D) not reject H_o;we cannot conclude that the mean differs from 10%

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Definitions:

Factor Model

A way of decomposing the factors that influence a security’s rate of return into common (systematic) and firm-specific influences.

Firm-specific Events

Events that directly affect a company's operations, financial performance, or stock price, independent of the market or economic conditions.

Macroeconomic Events

Large-scale economic events that affect the economy on a national or global level, such as inflation, unemployment, or fiscal policies.

Unsystematic Risk

The segment of risk that is unique to a specific company or industry, also known as diversifiable risk, which can be mitigated through diversification.