A research analyst is exam ining a stock fo r possible inclusion in his client's p o rtfolio. Over a 10-year period, the sample mean and the sample standard deviation o f annual returns on the stock were 20% and 15%, respectively. The client w ants to know if the risk, as measured by the standard deviation, differs from 18%.

a. C onstruct a 95% confidence interval o f the population variance and then infer the 95% confidence interval o f the population standard deviation.

b. W hat assum ption did you make in constructing the confidence interval?

c. Based on the above confidence interval, does the risk d iffe r from 18%? P-399