All that Glitter is Gold

Your parents have received a lump sum payment of $1 million from their retirement fund. Being risk-averse individuals, your parents would like to invest at least one third of the money into precious metal such as gold. Their way of buying gold is to buy a physical gold bar from the bank and store it in their cupboard at home.

Being a well-read individual, you advise them that those days of keeping physical gold is long gone and the trend now is to purchase 'paper gold'. You explained to them that the 'paper gold' is also known as Gold ETF (exchange traded fund), which is a representation of physical gold that might be in a dematerialised or paper form, which gives an option to invest in gold online. These units are traded in exchange of a single stock of any company.

Unlike physical gold, Gold ETF is a lot easier to invest because there is no fear of theft, storage or expenses like those in lockers or gold making charges. There are several Gold ETFs available in the market, with the more well-known ones such as SPDR Gold Shares, iShares Gold Trust and ETS Physical.

Over a meal, you had some argument with your parents whom are sceptical about investing in Gold ETF, while you insist confidently that Gold ETF's performance is the same as physical gold (spot gold), but with all the conveniences. Your sibling, Maryann, whom coincidentally works at a local jewellery shop sided with your parents' argument and downloaded a set of historical spot gold prices and ETF prices for SPDR Gold Shares, and challenged you to prove that they are the same. The spot price is simply the price at which a commodity could be transacted and delivered on right now.

The historical spot gold prices are provided in the denomination of per ounce basis, while the SPDR Gold Shares prices are in the denomination of per one-tenth ounce basis. Please use the Excel software and the data file "BUS105e_GBA_Data.xlsx" to answer the following questions.

Question 2

(a) State the 95% confidence intervals of the Spot Gold and SPDR Gold ETF price, separately. From the interval, discuss whether your claim that Gold ETF's

performance is the same as physical gold (Spot Gold) is justified.

(10 marks)

(b) Discuss whether your conclusion from the question (a) above will change if you use a 99.99% confidence interval. What will your conclusion (at the 99.99% confidence level) be if the number of data for each set is a quarter of the original data set? Explain your findings.

Question 3

How reliable is the verdict on your claim in 2(a)?

(6 marks)

You have decided to use the classical hypothesis testing approach to test Maryann's claim that the prices for SPDR Gold ETF and Spot Gold differs.

You should include the following:

(a) State the null and alternative hypotheses and explain how you develop these two (2)

hypotheses.

(5 marks)

(b) Execute the hypothesis testing with = 0.01 using Excel. Present and list the test statistic you use for this test. Explain your decision criteria and inform the outcome to

your parents.

(15 marks)

(c) Discuss the assumptions you have made in performing the hypothesis test? Are these assumptions reasonable for this case? Please provide explanation(s) to substantiate

your view.

Question 4

(10 marks)

(a) Now that you have conducted a series of inferential statistics to validate your claim. Discuss any three (3) possible concerns in business or statistical aspects regarding the approach used here. Such that in retrospect, how would you have done this study differently again?

(18 marks)

(b) Provide an executive summary of your analysis to your parents, including how this will affect your advisement to them on their investment decision, within

(indicate your word count).

(15 marks)