Financial Statistics

3584 words 15 pages
QUESTION 1 The managing partner for Westwood One Investment Managers Inc. gave a public seminar in which she discussed a number of issues, including investment risk analysis. In that seminar, she reminded people that the coefficient of variation can often be used as a measure of risk of an investment. To demonstrate her point of view, she used two hypothetical stocks as examples. She let x equal the change in assets for a $1,000.00 investment in stock1 and y reflect the change in assets for a $1,000.00 investment in stock2. She showed the seminar participants the following probability distributions: x | P (x) | Y | P (y) | $-1,000 | 0.1 | $-1,000 | 0.2 | $0 | 0.1 | $0 | 0.4 | $500 | 0.3 | $500 | 0.3 | $1,000 | 0.3 | $1,000 | 0.05 | …show more content…
* Conduct a hypothesis test to determine if the median income for men buying homes is more than $10,000 larger than that of women. Use a significance level of 0.05. (5 marks) * Describe any additional assumptions required to validate the results of the hypothesis test in part a. (5 marks)

Solution 1:
H0: μ1 - μ2 < 10,000 vs HA : μ1 - μ2 > 10,000
Solution 2: The following information are provided:
For man:
Size of the sample (n1) = 200
Sample mean (Xbar) = 58,939
Standard deviation for sample (s1) = 10,000

For woman:
Size of the sample (n1) = 302
Sample mean (Xbar) = 47, 315
Standard deviation for sample (s1) = 9,000

The significance level is = 0.05
The critical value t, from the t distribution with n1 + n1 -2 = 500 degrees of freedom, t =1.96

= 1.89
We rejectH0, if T > t.
Here, T< t, so we don’t reject H0
In conclusion, we have sufficient evidence to conclude that the median incomes difference between men and woman is less than 10,000.

1. The assumptions are as following: a. Both samples are drawn from normally distributed population. Median income and the mean income are the same. 2. Both populations have equal standard deviation.

QUESTION 5

In conjunction with the housing foreclosure crisis of 2009, many economists expressed increasing concern about the level of credit card debt and efforts of banks to raise interest rates on

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