Explanation:
This is a one-tailed hypothesis test for the mean weekly return being greater than zero.
For a one-tailed test at 5% significance level:
The manager should conclude that the mean weekly return is statistically significantly greater than zero at the 5% significance level.
This test demonstrates that the currency swap portfolio is generating statistically significant positive returns.
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A trading desk manager at a financial institution oversees the maintenance of currency swap lines and has gathered weekly returns data for a portfolio of currency swaps over the last year. The manager calculates the mean weekly portfolio return as 0.71%, and the sample standard deviation of returns as 0.52%. To determine the statistical significance of the mean weekly return being greater than zero, the manager decides to conduct a hypothesis test at a 5% level of significance. If the manager calculates the test statistic as 2.84, which of the following is correct?
A
The critical value of the test is 1.96; the manager should reject the null hypothesis and conclude that the mean return is significantly greater than zero.
B
The critical value of the test is 1.65; the manager should reject the null hypothesis and conclude that the mean return is significantly greater than zero.
C
The critical value of the test is 1.96; the manager should not reject the null hypothesis and therefore cannot conclude that the mean return is not significantly greater than zero.
D
The critical value of the test is 1.65; the manager should not reject the null hypothesis and therefore cannot conclude that the mean return is not significantly greater than zero.