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The Panama Railroad Company was established in 1850 to construct a railroad across the isthmus that would allow fast and easy access between the Atlantic and Pacific Oceans. The following table ( The Big Ditch, Mauer and Yu, 2011) provides annual returns for Panama Railroad stock from 1853 through 1880. Year Return on Panama Railroad Company Stock (%) 1853 −1 1854 −9 1855 19 1856 2 1857 3 1858 36 1859 21 1860 16 1861 −5 1862 43 1863 44 1864 48 1865 7 1866 11 1867 23 1868 20 1869 −11 1870 −51 1871 −42 1872 39 1873 42 1874 12 1875 26 1876 9 1877 −6 1878 25 1879 31 1880 30 a. Create a graph of the annual returns on the stock. The New York Stock Exchange earned an annual average return of 8.4% from 1853 through 1880. Can you tell from the graph if the Panama Railroad Company stock outperformed the New York Stock Exchange? b. Calculate the mean annual return on Panama Railroad Company stock from 1853 through 1880. Did the stock outperform the New York Stock Exchange over the same period?

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STATISTICS F/BUSINESS+ECONOMICS-TE...

13th Edition
Anderson
Publisher: CENGAGE L
ISBN: 9781305881884

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Chapter
Section
BuyFindarrow_forward

STATISTICS F/BUSINESS+ECONOMICS-TE...

13th Edition
Anderson
Publisher: CENGAGE L
ISBN: 9781305881884
Chapter 3, Problem 75SE
Textbook Problem
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The Panama Railroad Company was established in 1850 to construct a railroad across the isthmus that would allow fast and easy access between the Atlantic and Pacific Oceans. The following table (The Big Ditch, Mauer and Yu, 2011) provides annual returns for Panama Railroad stock from 1853 through 1880.

Year Return on Panama Railroad Company Stock (%)
1853 −1
1854 −9
1855 19
1856 2
1857 3
1858 36
1859 21
1860 16
1861 −5
1862 43
1863 44
1864 48
1865 7
1866 11
1867 23
1868 20
1869 −11
1870 −51
1871 −42
1872 39
1873 42
1874 12
1875 26
1876 9
1877 −6
1878 25
1879 31
1880 30
  1. a. Create a graph of the annual returns on the stock. The New York Stock Exchange earned an annual average return of 8.4% from 1853 through 1880. Can you tell from the graph if the Panama Railroad Company stock outperformed the New York Stock Exchange?
  2. b. Calculate the mean annual return on Panama Railroad Company stock from 1853 through 1880. Did the stock outperform the New York Stock Exchange over the same period?

a.

To determine

Draw a graph of the annual returns on the stock and explain whether it is possible to tell that from the graph if the Panama Railroad Company stock outperformed the New York Stock Exchange.

Explanation of Solution

Calculation:

The given information is that the table summarizes the annual returns for Panama Railroad stock from 1853 through 1880. The New York Stock Exchange earned an annual average return of 8.4% from 1853 through 1880.

Software Procedure:

A step-by-step procedure to draw the Time series plot using MINITAB software:

  • Choose Graph > Time Series Plot.
  • Choose Multiple, and then click OK...

b.

To determine

Find the mean annual return on Panama Railroad Company stock from 1853 through 1880 and check whether the stock outperforms the New York Stock Exchange over the same period.

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