206495 KHOO TEAN HUAT

ECN3221 Sem 1 2021/22

Tutorial 5: Inferences About Population Variances

1) To analyze the risk, or volatility, associated with investing in Company G common stock,
a sample of the eight quarterly percent total returns was identified as shown below. The
percent total return includes the stock price change plus the dividend payment for the
quarter:

Quarter 1 2 3 4 5 6 7 8
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?
20−20.5+12.2+12.6+10.5−5.8−18.7+15.3
x̅ =
8
= 3.2
The expected value of quarterly percent total returns in long run is 3.2

b. Compute the sample variance and sample standard deviation as measures of volatility for
the quarterly return for Company G.

√
2
Σ ( x−x )
S=
n−1

¿
√ ( 20−3.2 )2+ (−20.5−3.2 )2 + ( 12.2−3.2 )2 + ( 12.6−3.2 )2+ (10.5−3.2 )2 + (−5.8−3.2 )2 + (−18.7−3.2 )2 +(15.3−
8−1

= 15.92

S2 = 15.922

=253.45

c. Construct a 95% confidence interval for the population variance.

df = n - 1
=8–1
=7
α = 0.05
α/2 = 0.025
1- α/2 = 0.975
( n−1 ) s 2 2 ( n−1 ) s2
2
≤σ ≤ 2
χα / 2 χ 1−α / 2
(8−1) 253.45 2 (8−1) 253.45
≤σ ≤
16.013 1.690

Page 1 of 6
206495 KHOO TEAN HUAT

2
110.79 ≤ σ ≤ 1049.79

d. Construct a 95% confidence interval for the population standard deviation.

√ 110.79
= 10.53
√ 1049.79
=32.40
10.53 ≤ σ ≤32.40

Page 2 of 6
206495 KHOO TEAN HUAT

2) At the end of 2008, the variance in the semiannual yields of overseas government bond was
σ 2 = 0.70. A group of bond investors met at that time to discuss future trends in overseas
bond yields. Some expected the variability in overseas bond yields to increase and others
took the opposite view. The following table shows the semiannual yields for 12 overseas
countries as of March, 2009.

Country Yield (%) Country Yield (%)

Australia 3.98 Italy 4.51
Belgium 3.78 Japan 1.32
Canada 2.95 Netherlands 3.53
Denmark 3.55 Spain 3.90
France 3.44 Sweden 2.48
Germany 3.08 U.K. 3.76
a. Compute the mean, variance, and standard deviation of the overseas bond yields as of
March, 2009.

3.98+3.78+2.95+ 3.55+ 3.44+3.08+ 4.51+1.32+ 3.53+3.90+2.48+3.76

x̅ =
12

¿ 3.3567

( 3.98−3.3567 )2+ ( 3.78−3.3567 )2 + ( 2.95−3.3567 )2 + ( 3.55−3.3567 )2+ ( 3.44−3.3567 )2 + ( 3.08−3.3567 )2

2 2 2 2 2 2
+ ( 4.51−3.3567 ) + ( 1.32−3.3567 ) + ( 3.53−3.3567 ) + ( 3.90−3.3567 ) + ( 2.48−3.3567 ) + ( 3.67−3.3567 )
s2=
12−1

= 0.6899

s= √0.6899

= 0.8306

b. Develop hypotheses to test whether the sample data indicate that the variance in bond yields
has changed from that at the end of 2008.
2
H 0 :σ = 0.70
2
H a :σ ≠ 0.70

Page 3 of 6
206495 KHOO TEAN HUAT

c. Use α = 0.05 to conduct the hypothesis test formulated in part (b). What is your conclusion?

n = 12

2 ( n−1 ) s2
χ= 2
σ

(12−1 )( 0.6899 )
¿
0.70

= 10.84

df = 11

critical value approach:

2
χ 0.05 /2 =21.920

If χ 2 ≥ χ 2α / 2 , Reject H0

Thus χ 2 ≤ 21.920, cannot reject H0

We can conclude that the variance in bond yields has not changed from that at the end of
2008.

Page 4 of 6
206495 KHOO TEAN HUAT

3) Many smartphones, especially those of the LTE-enabled persuasion, have earned a bad
rap for exceptionally poor battery life. Battery life between charges for the Brand M
averages 20 hours when the primary use is talk time and 7 hours when the primary use is
internet application. Since the mean hours for talk time usage is greater than the mean
hours for internet usage, the question was raised as to whether the variance in hours of
usage is also greater when the primary use is talk time. Sample data showing battery
hours of use for the two applications follows.

Talking 35.8 22.2 4.0 32.6 8.5 42.5 8.0 3.8 30.0
12.8 10.3 35.5
Internet 14.0 12.5 16.4 1.9 9.9 5.4 1.0 15.2 4.0
4.7
a. Formulate hypotheses about the two population variances that can be used to determine if
the population variance in battery hours of use is greater for the talk time application.
2 2
H 0 :σ 1 ≤ σ 2
H a :σ 21 >σ 22

b. What are the standard deviations of battery hours of use for the two samples?
35.8+22.2+ 4.0+32.6+ 8.5+42.5+ 8.0+3.8+30.0+12.8+10.3+35.5
x 1=
12
246
¿
12
¿ 20.5

√
s1= ¿ ¿ ¿ ¿
¿

= 14.13

14.0+12.5+16.4+1.9+ 9.9+5.4+1.0+15.2+ 4.0+4.7

x 2=
10
= 8.5

√
s2= ¿ ¿ ¿ ¿
¿
= 5.77

Page 5 of 6
206495 KHOO TEAN HUAT

c. Conduct the hypothesis test and compute the p-value. Using a 0.05 level of significance,
what is your conclusion?
s 12
F= 2
s2
2
14.13
¿
5.77 2
¿ 6.00
df 1 =11
df 2 =9
α = 0.05
3.14> F 0.05 >3.01
Because the test statistic F= 6.00 is more than F 0.05
Thus, we can conclude that the p-value ≤ α
H0 is rejected
The population variance in battery hours of use is greater for the talk time application.

Page 6 of 6