QUESTIONS 19 THROUGH 32 RELATE TO QUANTITATIVE METHODS

19. Using the sample results given below, drawn as 25 paired observations from their underlying

distributions, test if the mean returns of the two portfolios differ from each other at the 1%

level of statistical significance. Assume the underlying distributions of returns for each portfolio

are normal and that their population variances are not known.

Portfolio 1 Portfolio 2 Difference

Mean Return 17.00 21.25 4.25

Standard Deviation 15.50 15.75 6.25

t-statistic for 24 df and at the 1% level of statistical significance = 2.807

Based on the paired comparisons test of the two portfolios, the most appropriate conclusion is:

A. reject the hypothesis that the mean difference equals zero as the computed test statistic

exceeds 2.807.

B. accept the hypothesis that the mean difference equals zero as the computed test statistic

C. accept the hypothesis that the mean difference equals zero as the computed test statistic is

less than 2.807.