A financial analyst examines the performance of two mutual funds and claims that the variances of the annual returns for the bond funds differ. To support his claim, he collects data on the annual returns (in percent) for the years 2001 through 2010. The analyst assumes that the annual returns for the two emerging market bond funds are normally distributed. Use the following summary statistics. The competing hypotheses are Η₀: / = 1, Η_A: / ≠ 1. Which of the following is the critical F value at the 10% significance level? A) F_0.10,(9,9)= 2.44 B) F_0.05,(10,10)= 2.98 C) F_0.05,(9,9) = 3.18 D) F_0.10,(10,10)= 2.32

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Quizplus · Accepted Answer

Since the analyst is comparing variances of two samples, a two-sided F test is appropriate. The null hypothesis is that the variances are equal, and the alternative hypothesis is that they are not equal. The significance level is 10%, which means that we want the probability of rejecting the null hypothesis when it is true to be 10% or less. The critical F value for a two-sided F test with 9 and 9 degrees of freedom at the 10% significance level is 3.18 (from the F distribution table). Therefore, the correct answer is (C) F_0.05,(9,9) = 3.18.

A Financial Analyst Examines the Performance of Two Mutual Funds