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Consider the following information about a fund. The fund has been in existence for 3 years. Over this period it has achieved a mean monthly return of 3% with a sample standard deviation of monthly returns of 5%. It was expected to earn a 2.5% mean monthly return over the 3-year period. You want to test a claim that the investment disciplines of the fund result in a standard deviation of monthly returns of less than 6%. At the 0.05 level of significance:
Correct Answer: B
At the 0.05 level of significance we reject the null hypothesis. 2 2 2 2 2 x = [(n - 1) s ] /o = 35 x 5 /6 = 24.306. 0 2 On the table at 35 degrees of freedom under the 0.95 column, we find the x value. We use 50 since there is no value for 35. At 50 the value is 34.764. We will fail to reject the null if we find that chi-square is less than 34.764. 24.306 is less than 34.764, so we fail to reject the null hypothesis.