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 is greater than the upper critical value OR if the test statistic is less than the lower critical value.
At a 5% level of significance, the z-critical value is +/- 1.96.
Test statistic =
Since the test statistic is greater than the upper critical value (or 5.24 > 1.96), the null hypothesis is rejected.
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Q.71 A quantitative analyst has calculated the mean HPR of 1% for 110 European corporate bonds with a 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, which of the following is the most accurate result of the test?
A
Reject H0: μ = 0%.
B
Reject H1: μ ≠ 0%.
C
Accept H0: μ ≠ 0%.
D
Accept H1: μ < 0%.
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