Question
It is assumed that stock returns are generated independently from the population distributions that follows normal distributions with unknown mean and variance. (i) Test the
It is assumed that stock returns are generated independently from the population distributions that follows normal distributions with unknown mean and variance.
(i) Test the hypothesis that the average return on APPL is different from 3 percent at the 5% level of significance. Make sure you present the test step by step leading to the conclusion, explaining which test statistic you use to perform this hypothesis test and why. [Hint: Hypothesis test about a population mean]
(ii) Before investing in one of the two stocks, we would like to compare the risks associated with the two stocks. For this comparison, perform and present an appropriate hypothesis test at the 5% level of significance, and interpret your result. [Hint: Hypothesis test about the equality of population variances]
(iii) We would also like to check whether both stocks have thesame return on average. Using the confidence interval approach, perform and present an appropriate hypothesis test at the 5% level of significance, and interpret your result. Which stock would you prefer and why?[Hint: Hypothesis test about two population means. Zero marks if you test using an approach other than the confidence interval approach.]
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