Velma Vasquez, fund manager of the Vasquez Value Fund, manages a portfolio of 250 common stocks.Velma relies on various statistics, such as variance, to assess the overall risk of stocks in an economic sector.Her staff reported that for a sample 14 utility stocks the mean annualized return was 14% and that the variance was 3%.Assume that annualized returns are normally distributed.The 95% confidence interval for the population variance of annualized returns for utility stocks is _______.
A)0.018 to 0.064
B)0.016 to 0.078
C)0.017 to 0.066
D)0.016 to 0.075
E)0.020 to 0.080

Question

Quizplus · Accepted Answer

The confidence interval for the population variance is calculated using the chi-square distribution. With a sample size of 14, the degrees of freedom is 13. Using the chi-square distribution table, the 95% confidence interval for the variance is calculated as ( (n-1)s^2 / χ² upper, (n-1)s^2 / χ² lower ), which results in the interval 0.016 to 0.078.

Velma Vasquez, Fund Manager of the Vasquez Value Fund, Manages