Question

Socially conscious investors screen out stocks of alcohol and tobacco makers, firms with poor environmental records, and companies with poor labor practices. Some examples of "good," socially conscious companies are Johnson and Johnson, Dell Computers, Bank of America, and Home Depot. The question is, are such stocks overpriced? One measure of value is the P/e, or price-to-earings ratio High P/E ratios may indicate a stock is overpriced. For the S&P Stock Index of all major stocks, the mean P/E ratio isu - 19.4. A random sample of 36 "socially conscious stocks gave a P/E ratio sample mean of x 17.8, with sample standard deviations - 5.6. Does this indicate that the mean P/E ratio of all socially conscious stocks is different (elther way) from the mean P/E ratio of the SAP Stock Index? Use a = 0.05. USE SALT (a) What is the level of significance? State the null and alternate hypotheses Ho: M. 19.4; HH - 19.4 - Ho" = 194 1 4 2 19,4 Ho: > 19.4; H1M - 19.4 Hot - 19.4; Mt < 19.4 Hol - 194; Mt. 19.4 (b) What sampling distribution will you use? Explain the rationale for your choice of sampling distribution The standard normal, since the sample size is large and is unknown The standard normal, since the sample size is large and is known. The Student's t, since the sample size is large and is unknown The Student's t, since the sample size is large and is known What is the value of the sample test statistic? (Round your answer to three decimal places.) (c) Estimate the value

Answer 1

193 Hose , level of significance = 2=0.05 Hypothesis can be formulated as, Hoi l 19.4 H, i el 19.4 b Husk X HK Test Stealistic : Test Stalistie : tat-ly slun We use t-distöbertion because popekelion Standard deviation in Unknoon. Now, t = 17.8 – 19.4 -1.6x6 5.6 5.6 / 136 5-1.7142857 a -10714

Hese, sample size is largelns 30) bet poperlotrow Standasd deviation lo) v unknown. Therefore, we rese to distribertion. Therefore, option le is correcto parallee 70D [t -1.714) = 0.0954. © <