Chapter B.3, Problem 9AYU

NW 9. Mutual Fund Risk One measure of the risk of a mutual fund is the standard deviation of its rate of return. Suppose a mutual fund qualifies as having moderate risk if the standard deviation of its monthly rate of return is less than 4%. A mutual-fund manager claims that his fund has moderate risk. A mutual-fund rating agency does not believe this claim and randomly selects 25 months and determines the rate of return for the fund. The standard deviation of the rate of return is computed to be 3.01%. Is there sufficient evidence to conclude that the fund has moderate risk at the α = 0.05 level of significance? A normal probability plot indicates that the monthly rates of return are normally distributed.