Posted: June 7th, 2016
1. What is the purpose of hypothesis testing?
2. Do you see any relevant to hypothesis testing in your daily life? This could be school life, personal life, or work life.
3. Start with work life and give us a description of 2-3 scenarios where hypothesis testing may be beneficial.
You have just received an inheritance of $10,000 and you decide that you should invest the money rather than blow it on frivolous items. You have decided that you will invest the money in one of two types of mutual funds. The first type that you are considering follows a large-value approach to investing. This means that the mutual fund invests only in large, established companies that are considered to be a good bargain. The second type following a large-growth approach to investing. This means that the mutual fund invests in large companies that are experiencing solid revenue growth. To make an informed decision, you decide to reach the rate of return for the past 3 years for each type of mutual fund. The mutual fund must have a Morningstar rating of four or five stars.
The Morningstar mutual-fund rating system ranks mutual funds, using one to five stars. The stars divide the mutual-fund performances into quintiles: that is, a mutual fund with a one-star rating is in the bottom 20% of mutual funds in its category, a mutual fund with two-stars is in between the 21st and 40th percentile, and so on. These data can be found at www.morningstar.com or screen.yahoo.com/funds.html
1. Obtain a random sample of at least 15 mutual funds from each investment category. Determine the 3 years rate of return for each fund.
2. Obtain a 95% confidence interval for the difference between the mean rates of return. Interpret the interval.
3. Write a report detailing which investment category seems superior. Write a report (4-5 paragraphs) with supporting data supporting your conclusion. Take a screen shot of the results from Excel and paste them into your Word document.
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