Financial Risk Manager Part 1
Get started today
Ultimate access to all questions.
Deep dive into the quiz with AI chat providers.
We prepare a focused prompt with your quiz and certificate details so each AI can offer a more tailored, in-depth explanation.
A quantitative analyst has calculated the mean HPR of 1% for 110 European corporate bonds with the standard deviation of 2%. If the analyst wants to test at a 5% level of significance that the mean HPR on European corporate bonds is different from zero, then which of the following is the most accurate result of the test?
Other
Community
NNikitesh
A
Reject H₀: μ = 0%
B
Reject H₁: μ ≠ 0%
C
Accept H₀: μ ≠ 0%
D
Accept H₁: μ < 0%
Explanation:
Since the quantitative analyst wants to test if the returns are different from zero, the appropriate hypotheses are H₀: μ = 0% and H₁: μ ≠ 0%.
The decision rule is to reject H₀ if the test statistic > the upper critical value OR if the test statistic < the lower critical value.
At a 5% level of significance, the z-critical value is +/- 1.96.
Test statistic = (Sample mean - Hypothesized value) / (Standard deviation / √Sample size) = (1% - 0%) / (2% / √110) = 5.24
Since the test statistic > the upper critical value (or 5.24 > 1.96), the null hypothesis is rejected and the alternative hypothesis is accepted.
Comments
Loading comments...