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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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.
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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