For Exercises 7.1 and 7.2, see page 360; for 7.3 and 7.4, see page 362; for 7.5 to 7.7, see page 365; for 7.8 and 7.9, see page 368; for 7.10 and 7.11, see page 371; and for 7.12 and 7.13, see page 372.
7.7 Average quarterly return.
A stockbroker determines the short-run direction of the market using the average quarterly return of stock mutual funds. He believes the next quarter will be profitable when the average is greater than 1%. He will get complete quarterly return information soon, but right now he has data from a random sample of 30 stock funds. The mean quarterly return in the sample is 1.5%, and the standard deviation is 1.9%. Based on this sample, test to see if the broker will feel the next quarter will be profitable.
7.7
(a) . Because the next quarter will be profitable when the average is greater than 1%, this indicates a one-sided alternative. (b) . The data do not give good evidence that the next quarter will be profitable.