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A conservative investor would like to invest some money in a bond fund. The investor is concerned about the safety of her principal (the
A conservative investor would like to invest some money in a bond fund. The investor is concerned about the safety of her principal (the original money invested). Colonial Funds claims to have a bond fund which has maintained a consistent share price of $7. They claim that this share price has not varied by more than $0.25 on average since its inception. To test this claim, the investor randomly selects 25 days during the last year and determines the share price for the bond fund. The average share price of the sample is $7 with a standard deviation of $0.35. a. Can the investor conclude that the standard deviation of share price of the bond fund is greater than 0.25? Test at the 0.01 level. b. What assumption did you make about the share price of the bond fund in your test in part a.?
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