Consider the following scenario: We collect daily market price data for the comm
ID: 3022655 • Letter: C
Question
Consider the following scenario: We collect daily market price data for the common share of XYZ corporation. The data contains the last 60 trading days. The average daily price change over the course of those 60 days is $0.010. The sample standard deviation is $0.300. Note, we don’t know what the population standard deviation is.
Can we argue with 90% confidence that the population mean (of the average daily price change of the common share of XYZ corporation) is indistinguishable from zero?
Question 1 options:
A) Yes, we can't reject the hypothesis that the population mean is zero.
B) No, we reject the hypothesis that the population mean is zero.
C) None of the above as not enough information is provided.
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A) Yes, we can't reject the hypothesis that the population mean is zero.
B) No, we reject the hypothesis that the population mean is zero.
C) None of the above as not enough information is provided.
Explanation / Answer
Formulating the null and alternative hypotheses,
Ho: u = 0
Ha: u =/ 0
As we can see, this is a two tailed test.
Thus, getting the critical z, as alpha = 0.1 ,
alpha/2 = 0.05
zcrit = +/- 1.644853627
[=NORMSINV(0.05) will give this area]
Getting the test statistic, as
X = sample mean = 0.01
uo = hypothesized mean = 0
n = sample size = 60
s = standard deviation = 0.3
Thus, z = (X - uo) * sqrt(n) / s = 0.25819889
As |z| < -1.645, we FAIL TO REJECT THE NULL HYPOTHESIS.
Hence,
OPTION A: Yes, we can't reject the hypothesis that the population mean is zero. [CONCLUSION]