BES - R LAB 3
Inferences about variance(s)
1. Objectives
• Inferences about one variance
• Inferences about two variances
2. Inferences about one variance
Complete the following exercises in your textbook by hand:
1. Find the following chi-square distribution values from Table 11.1 or Table 3 of Appendix B.
$
a. 𝜒."# with 𝑑𝑓 = 5
$
b. 𝜒."$# with 𝑑𝑓 = 15
$
c. 𝜒.%&# with 𝑑𝑓 = 20
$
d. 𝜒."' with 𝑑𝑓 = 10
$
e. 𝜒.%# with 𝑑𝑓 = 18
2. Volatility of General Electric Stock. To analyze the risk, or volatility, associated with
investing in General Electric common stock, consider a sample of the eight quarterly percent
total returns. The percent total return includes the stock price change plus the dividend payment
for the quarter.
20.0 -20.5 12.2 12.6 10.5 -5.8 -18.7 15.3
a. What is the value of the sample mean? What is its interpretation?
b. Compute the sample variance and sample standard deviation as measures of volatility for
the quarterly return for General Electric.
c. Construct a 95% confidence interval for the population variance.
d. Construct a 95% confidence interval for the population standard deviation.
3. Costco Customer Satisfaction. Consumer Reports uses a 100-point customer satisfaction score
to rate the nation's major chain stores. Assume that from past experience with the satisfaction
rating score, a population standard deviation of 𝜎 = 12 is expected. In 2012, Costco, with its
432 warehouses in 40 states, was the only chain store to earn an outstanding rating for overall
quality. A sample of 15 Costco customer satisfaction scores follows.
95 90 83 75 95
98 80 83 82 93
86 80 94 64 62
a. What is the sample mean customer satisfaction score for Costco?
b. What is the sample variance?
c. What is the sample standard deviation?
d. Construct a hypothesis test to determine whether the population standard deviation of 𝜎 =
12 should be rejected for Costco. With a .05 level of significance, what is your conclusion?
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BES - R LAB 3
3. Inferences about two variances
Complete the following exercises in your textbook by hand:
4. Find the following F distribution values from Table 4 of Appendix B.
a. 𝐹."# with degree of freedom 5 and 10
b. 𝐹."$# with degree of freedom 10 and 15
c. 𝐹."' with degree of freedom 8 and 12
d. 𝐹.'" with degree of freedom 10 and 20
5. Comparing Risk of Mutual Funds. Investors commonly use the standard deviation of the
monthly percentage return for a mutual fund as a measure of the risk for the fund; in such cases,
a fund that has a larger standard deviation is considered more risky than a fund with a lower
standard deviation. The standard deviation for the American Century Equity Growth fund and
the standard deviation for the Fidelity Growth Discovery fund were recently reported to be
15.0% and 18.9%, respectively. Assume that each of these standard deviations is based on a
sample of 60 months of returns. Do the sample results support the conclusion that the Fidelity
fund has a larger population variance than the American Century fund? Which fund is more
risky?
6. Variance in Fund Amounts: Merrill Lynch versus Morgan Stanley. Barron's has collected
data on the top 1000 financial advisers. Merrill Lynch and Morgan Stanley have many of their
advisers on this list. A sample of 16 of the Merrill Lynch advisers and 10 of the Morgan Stanley
advisers showed that the advisers managed many very large accounts with a large variance in
the total amount of funds managed. The standard deviation of the amount managed by the
Merrill Lynch advisers was 𝑠' = $5887 million. The standard deviation of the amount managed
by the Morgan Stanley advisers was 𝑠$ = $489 million. Conduct a hypothesis test at 𝛼 = .10
to determine if there is a significant difference in the population variances for the amounts
managed by the two companies. What is your conclusion about the variability in the amount of
funds managed by advisers from the two firms?
7. Salaries at Public Accounting Firms. On the basis of data provided by a Romac salary survey,
the variance in annual salaries for senior partners in public accounting firms is approximately
2.1 and the variance in annual salaries for managers in public accounting firms is approximately
11.1. The salary data were provided in thousands of dollars. Assuming that the salary data were
based on samples of 25 senior partners and 26 managers, test the hypothesis that the population
variances in the salaries are equal. At a .05 level of significance, what is your conclusion?
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