Explanation:
The null hypothesis for a test of equality of means is . Assuming the variances are equal, the degrees of freedom for this test are . From the table of critical values for Student’s t-distribution, the critical value for a two-tailed test at the 5% significance level for is 2.074. Because the calculated t-statistic of 2.0 is less than the critical value, this test fails to reject the null hypothesis that the means are equal.
(Book 2, Module 17.1, LO 17.a)
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Question 96
A financial analyst wants to determine whether there is a significant difference, at the 5% significance level, between the mean monthly return on Stock GHI and the mean monthly return on Stock JKL. He assumes the variances of the two stocks’ returns are equal. Using the last 12 months of returns on each stock, Fisher calculates a t-statistic of 2.0 for a test of equality of means. Based on this result, his test:
A
accepts the null hypothesis.
B
rejects the null hypothesis, and Fisher can conclude that the means are equal.
C
rejects the null hypothesis, and Fisher can conclude that the means are not equal.
D
fails to reject the null hypothesis.
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