21. An investor is considering two types of investment. She is quite satisfied that the expected return on investment 1 is higher than the expected return on investment 2. However, she is quite concerned that the risk associated with investment 1 is higher than that of investment 2. To help make her decision, she randomly selects seven monthly returns on investment 1 and ten monthly returns on investment 2. She finds that the sample variances of investments 1 and 2 are 225 and 118, respectively. a) Can she infer at the 5% significance level that the population variance of investment 1 exceeds that of investment 2? b) Estimate with 95% confidence the ratio of the two population variances. c) Briefly describe what the interval estimate tells you.
21. An investor is considering two types of investment. She is quite satisfied that the expected return on investment 1 is higher than the expected return on investment 2. However, she is quite concerned that the risk associated with investment 1 is higher than that of investment 2. To help make her decision, she randomly selects seven monthly returns on investment 1 and ten monthly returns on investment 2. She finds that the sample variances of investments 1 and 2 are 225 and 118, respectively. a) Can she infer at the 5% significance level that the population variance of investment 1 exceeds that of investment 2? b) Estimate with 95% confidence the ratio of the two population variances. c) Briefly describe what the interval estimate tells you.
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Author:Amos Gilat
Publisher:Amos Gilat
Chapter1: Starting With Matlab
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
Transcribed Image Text:tion
21. An investor is considering two types of investment. She is quite satisfied that the
expected return on investment 1 is higher than the expected return on investment 2.
However, she is quite concerned that the risk associated with investment 1 is higher than
that of investment 2. To help make her decision, she randomly selects seven monthly
returns on investment 1 and ten monthly returns on investment 2. She finds that the
sample variances of investments 1 and 2 are 225 and 118, respectively.
a) Can she infer at the 5% significance level that the population variance of investment 1
exceeds that of investment 2?
b) Estimate with 95% confidence the ratio of the two population variances.
c) Briefly describe what the interval estimate tells you.
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