A portfolio manager was analyzing the price-earnings ratio for this year's performance.His boss said that the average price-earnings ratio was 20 for the many stocks,which his firm had traded,but he felt that figure was too high.The portfolio manager randomly selected a sample of 50 P/E ratios and found a mean of 18.17 and standard deviation of 4.60.Assume that the population is normally distributed and test at the 0.01 level of significance.
The decision is: Because the test statistic t = -2.83 is not less than -2.33,fail to reject H0.At the 0.01 level,the sample data suggest that the average P/E ratio for the stocks is not less than 20.

Question

Quizplus · Accepted Answer

The decision should be that we reject H0, as the test statistic indicates that the sample mean is significantly lower than the hypothesized population mean of 20. Thus, it suggests that the average P/E ratio for the stocks is less than 20.

A Portfolio Manager Was Analyzing the Price-Earnings Ratio for This