Exam 2 Pratice

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University of Texas, Dallas *

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Course

ECONOMETRI

Subject

Economics

Date

Jan 9, 2024

Type

docx

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1

Uploaded by JohnnyH2024

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During a 20-year period, that standard deviation of annual returns on a portfolio 4 John is analyzing was 8 percent. He suspected that the portfolio’s underlying variance of return was less than 100 basis points. He would like to construct a hypothesis test to validate his judgment. Question A: Formulate null and alternative hypothesis. Question B: Calculate the value of test statistic for conducting the test in part (a). Question C: Identify the rejection point or points at the 5% significance level for the hypothesis in part (a). (Use excel functions for the rejection point) Selected Answer: Correct Answer: A.) Null Hypothesis - Population variance is 100 basis points HO = 100 Alterative hypothesis - Population variance is less than 100 H1 < 100 B.) The Chi-Square test for population variance is used to test whether the sample variance is less than 100 x72 = ((20-1) * 842)/100 = (19*64)/100 = 12.16 C.)Probability = 5%, Degrees_freedom = n-1 =20-1 =19 CHISQ.INV(Probability,degrees_freedom) = CHISQ.INV(0.05.19) = 10.1170 Rejection point = 10.1170 @ A: HO: sigma*2 = 1%, Ha: sigma*2 < 1% B: Test-stat = (20-1)*(8%)"2/1% = 12.16 C: Rejection Region is in the left tail. Rejection Point=CHISQ.INV(5%,19)
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