Hypothesis Testing for Mean Monthly Return

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In hypothesis testing, which of the following is the appropriate set of null and alternative hypotheses to test whether the actual mean monthly return is 2.0%?

H0: μ = 2.0; Ha: μ ≠ 2.0 (correct)

H0: μ ≥ 2.0; Ha: μ < 2.0

H0: μ > 2.0; Ha: μ ≤ 2.0

H0: μ ≤ 2.0; Ha: μ > 2.0

Given a significance level of 10%, can the null hypothesis be rejected if the actual mean monthly return is 2.0%?

No (correct)

Depends on the sample size

Cannot be determined

Yes

Which of the following statements accurately describes paired comparisons tests?

The two samples are assumed to be independent. (correct)

Sample sizes must be equal.

Sample data must be skewed.

The appropriate test statistic is a z-statistic.

In hypothesis testing, what is the appropriate test statistic for paired comparisons tests?

T-statistic Signup and view all the answers

Which of the following statements accurately describes Type I and Type II errors in hypothesis testing?

Type I error probability is always lower than the significance level. Signup and view all the answers

Which of the following is a common misconception about errors in hypothesis testing?

Type I error probability is one minus the significance level. Signup and view all the answers

What would be the most appropriate hypothesis test for Robert Patterson's belief about the return on options trading being higher on Mondays?

Returns on Mondays are greater than returns on other days. Signup and view all the answers

Which of the following is a strength of the bootstrapping method for simulation of asset price returns?

It provides more exact results and further insight than analytical methods. Signup and view all the answers

In the covariance matrix provided, what is the correlation between funds J and K?

-0.372 Signup and view all the answers

If a client wants to invest $200,000 in a business two years from now, how much should they set aside today with an interest rate of 6% compounded quarterly?

$177,542 Signup and view all the answers

What would be the appropriate null hypothesis for testing whether an investment strategy results in a standard deviation of monthly returns less than 0.05?

$σ^2 ≥ 0.0025; Ha: σ^2 < 0.0025 Signup and view all the answers

Which statement accurately describes the bootstrapping method for simulation of asset price returns?

It is computationally intensive and time-consuming. Signup and view all the answers

In hypothesis testing, what happens to the power of a test when the significance level increases?

Increases Signup and view all the answers

For a two-tailed test with a significance level of 0.10 and a critical value of 1.714, when can the null hypothesis be rejected?

Both a and b Signup and view all the answers

When is the paired comparisons (mean differences) test used for comparing means of two samples?

When the samples are dependent Signup and view all the answers

For hypothesis tests involving the variance of a normally distributed population, which statistic is typically used?

Chi-square statistic Signup and view all the answers

Which of the following statements is accurate about the null hypothesis in a two-tailed test regarding the correlation coefficient?

The null hypothesis states that the correlation coefficient equals zero. Signup and view all the answers

What is an inaccurate statement regarding the probability of a Type II error calculation?

It can be calculated based solely on the significance level. Signup and view all the answers