06 Sampling and Estimation

SamplingandEstimation TestID:7658769
Question#1of87 QuestionID:413309
Whichofthefollowingisthebestmethodtoavoiddataminingbiaswhentestingaprofitabletradingstrategy?
A) Increasethesamplesizetoatleast30observationsperyear.
B) Useasamplefreeofsurvivorshipbias.
C) Testthestrategyonadifferentdatasetthantheoneusedtodeveloptherules.
Explanation
Thebestwaytoavoiddataminingistotestapotentiallyprofitabletradingruleonadatasetdifferentthantheoneyouusedto
developtherule(outofsampledata).Alargersamplesizewon'tpreventdatamining,andyoucanstilldatamineadatabase
freeofsurvivorshipbias.
Whichofthefollowingisleastlikelyastepinstratifiedrandomsampling?
A) Thesubsamplesarepooledtocreatethecompletesample.
B) Thepopulationisdividedintostratabasedonsomeclassificationscheme.
C) Thesizeofeachsubsampleisselectedtobethesameacrossstrata.
Explanation
Instratifiedrandomsamplingwefirstdividethepopulationintosubgroups,calledstrata,basedonsomeclassificationscheme.
Thenwerandomlyselectasamplefromeachstratumandpooltheresults.Thesizeofthesamplesfromeachstrataisbased
ontherelativesizeofthestratarelativetothepopulationandarenotnecessarilythesameacrossstrata.
Student'stDistribution
LevelofSignificanceforOneTailedTest
df 0.100 0.050 0.025 0.01 0.005 0.0005
LevelofSignificanceforTwoTailedTest
df 0.20 0.10 0.05 0.02 0.01 0.001

30 1.310 1.697 2.042 2.457 2.750 3.646
40 1.303 1.684 2.021 2.423 2.704 3.551
60 1.296 1.671 2.000 2.390 2.660 3.460
120 1.289 1.658 1.980 2.358 2.617 3.373
Fromasampleof41ordersforanonlinebookseller,theaverageordersizeis$75,andthesamplestandarddeviationis$18.
Assumethedistributionofordersisnormal.Forwhichintervalcanonebeexactly90%confidentthatthepopulationmeanis
containedinthatinterval?
A) $71.29to78.71.
B) $74.24to$75.76.
C) $70.27to$79.73.
Explanation
Ifthedistributionofthepopulationisnormal,butwedon'tknowthepopulationvariance,wecanusetheStudent'stdistribution
toconstructaconfidenceinterval.Becausethereare41observations,thedegreesoffreedomare40.FromStudent'sttable,
wecandeterminethatthereliabilityfactorfort/2,ort0.05,is1.684.Thenthe90%confidenceintervalis$75.001.684($18.00
/41),or$75.001.684$2.81or$75.00$4.73
Ascientistworkingforapharmaceuticalcompanytriesmanymodelsusingthesamedatabeforereportingtheonethatshows
thatthegivendrughasnoserioussideeffects.Thescientistisguiltyof:
A) lookaheadbias.
B) sampleselectionbias.
C) datamining.
Explanation
Dataminingistheprocesswherethesamedataisusedwithdifferentmethodsuntilthedesiredresultsareobtained.
MonthlyGrossDomesticProduct(GDP)figuresfrom19902000areanexampleof:
A) timeseriesdata.
B) crosssectionaldata.
C) systematicdata.
Explanation
Atimeseriesisagroupofobservationstakenatspecificandequallyspacedpointsintime.Crosssectionaldataare
observationstakenatasinglepointintime.
CumulativeZTable
z 0.05 0.06 0.07 0.08 0.09
2.4 0.9929 0.9931 0.9932 0.9934 0.9936
2.5 0.9946 0.9948 0.9949 0.9951 0.9952
2.6 0.9960 0.9961 0.9962 0.9963 0.9964
2.7 0.9970 0.9971 0.9972 0.9973 0.9974
TheaveragereturnontheRussell2000indexfor121monthlyobservationswas1.5%.Thepopulationstandarddeviationis
assumedtobe8.0%.Whatisa99%confidenceintervalforthemonthlyreturnontheRussell2000index?
A) 0.4%to3.4%.
B) 0.1%to2.9%.
C) 6.5%to9.5%.
Explanation
Becauseweknowthepopulationstandarddeviation,weusethezstatistic.Thezstatisticreliabilityfactorfora99%
confidenceintervalis2.575.Theconfidenceintervalis1.5%2.575[(8.0%)/121]or1.5%1.9%.
AnarticleinatradejournalsuggeststhatastrategyofbuyingthesevenstocksintheS&P500withthehighestearningsto
priceratioattheendofthecalendaryearandholdingthemuntilMarch20ofthefollowingyearproducessignificanttrading
profits.Uponreadingfurther,youdiscoverthatthestudyisbasedondatafrom1993to1997,andtheearningstopriceratio
iscalculatedusingthestockpriceonDecember31ofeachyearandtheannualreportedearningspershareforthatyear.
Whichofthefollowingbiasesisleastlikelytoinfluencethereportedresults?
A) Lookaheadbias.
B) Survivorshipbias.
C) Timeperiodbias.
Explanation
Survivorshipbiasisnotlikelytosignificantlyinfluencetheresultsofthisstudybecausetheauthorslookedatthestocksinthe
S&P500atthebeginningoftheyearandmeasuredperformanceoverthefollowingthreemonths.Lookaheadbiascouldbe
aproblembecauseearningspriceratiosarecalculatedandthetradingstrategyimplementedatatimebeforeearningsare
actuallyreported.Finally,thestudyisconductedoverarelativelyshorttimeperiodduringthelongbullmarketofthe1990s.
Thissuggeststheresultsmaybetimespecificandtheresultoftimeperiodbias.
Whatisthe95%confidenceintervalforapopulationmeanwithaknownpopulationvarianceof9,basedonasampleof400
observationswithmeanof96?
A) 95.613to96.387.
B) 95.706to96.294.
C) 95.118to96.882.
Explanation
Becausewecancomputethepopulationstandarddeviation,weusethezstatistic.A95%confidencelevelisconstructedby
takingthepopulationmeanandaddingandsubtractingtheproductofthezstatisticreliability(z/2)factortimestheknown
standarddeviationofthepopulationdividedbythesquarerootofthesamplesize(notethatthepopulationvarianceisgiven
anditspositivesquarerootisthestandarddeviationofthepopulation):xz/2(/n1/2)=961.96(91/2/4001/2)=96
1.96(0.15)=960.294=95.706to96.294.
Anurserysellstreesofdifferenttypesandheights.Supposethat75treeschosenatrandomaresoldforplantingatCityHall.
These75treesaverage60inchesinheightwithastandarddeviationof16inches.
Usingthisinformation,constructa95%confidenceintervalforthemeanheightofalltreesinthenursery.
A) 60+1.96(16).
B) 0.8+1.96(16).
C) 60+1.96(1.85).
Explanation
Becausethesamplesizeissufficientlylarge,wecanusethezstatistic.A95%confidencelevelisconstructedbytakingthe
samplemeanandaddingandsubtractingtheproductofthezstatisticreliabilityfactor(z/2)timesthestandarderrorofthe
samplemean:xz/2(s/n1/2)=60(1.96)(16/751/2)=60(1.96)(16/8.6603)=60(1.96)(1.85).
Aresearchpaperthatreportsfindingaprofitabletradingstrategywithoutprovidinganydiscussionofaneconomictheorythat
makespredictionsconsistentwiththeempiricalresultsismostlikelyevidenceof:
A) datamining.
B) asamplethatisnotlargeenough.
C) anonnormalpopulationdistribution.
Explanation
Dataminingoccurswhentheanalystcontinuallyusesthesamedatabasetosearchforpatternsortradingrulesuntilhefinds
onethatworks.Ifyouarereadingresearchthatsuggestsaprofitabletradingstrategy,makesureyouheedthefollowing
warningsignsofdatamining:
Evidencethattheauthorusedmanyvariables(mostunreported)untilhefoundonesthatweresignificant.
Thelackofanyeconomictheorythatisconsistentwiththeempiricalresults.
Therangeofpossiblevaluesinwhichanactualpopulationparametermaybeobservedatagivenlevelofprobabilityisknown
asa:
A) significancelevel.
B) degreeofconfidence.
C) confidenceinterval.
Explanation
Aconfidenceintervalisarangeofvalueswithinwhichtheactualvalueofaparameterwilllie,givenaspecifiedprobability
level.Apointestimateisasinglevalueusedtoestimateapopulationparameter.Anexampleofapointestimateisasample
mean.Thedegreeofconfidenceistheconfidencelevelassociatedwithaconfidenceintervalandiscomputedas1a.
Inwhichoneofthefollowingcasesisthetstatistictheappropriateonetouseintheconstructionofaconfidenceintervalfor
thepopulationmean?
A) Thedistributionisnonnormal,thepopulationvarianceisunknown,andthe
samplesizeisatleast30.
B) Thedistributionisnonnormal,thepopulationvarianceisknown,andthesamplesize
isatleast30.
C) Thedistributionisnormal,thepopulationvarianceisknown,andthesamplesizeis
lessthan30.
Explanation
Thetdistributionisthetheoreticallycorrectdistributiontousewhenconstructingaconfidenceintervalforthemeanwhenthe
distributionisnonnormalandthepopulationvarianceisunknownbutthesamplesizeisatleast30.
Fromapopulationof5,000observations,asampleofn=100isselected.Calculatethestandarderrorofthesamplemeanifthe
populationstandarddeviationis50.
A) 5.00.
B) 4.48.
C) 50.00.
Explanation
Thestandarderrorofthesamplemeanequalsthestandarddeviationofthepopulationdividedbythesquarerootofthesamplesize:50/
1001/2=5.
Anequityanalystneedstoselectarepresentativesampleofmanufacturingstocks.Startingwiththepopulationofallpublicly
tradedmanufacturingstocks,sheclassifieseachstockintooneofthe20industrygroupsthatformtheIndexofIndustrial
Productionforthemanufacturingindustry.Shethenselectsanumberofstocksfromeachindustrybasedonitsweightinthe
index.Thesamplingmethodtheanalystisusingisbestcharacterizedas:
A) stratifiedrandomsampling.
B) nonrandomsampling.
C) datamining.
Explanation
Instratifiedrandomsampling,aresearcherclassifiesapopulationintosmallergroupsbasedononeormorecharacteristics,
takesasimplerandomsamplefromeachsubgroupbasedonthesizeofthesubgroup,andpoolstheresults.
JosephLucalculatedtheaveragereturnonequityforasampleof64companies.Thesampleaverageis0.14andthesample
standarddeviationis0.16.Thestandarderrorofthemeanisclosestto:
A) 0.0200.
B) 0.1600.
C) 0.0025.
Explanation
Thestandarderrorofthemean=/n=0.16/64=0.02.
Asampleofsizen=25isselectedfromanormalpopulation.Thissamplehasameanof15andasamplevarianceof4.What
isthestandarderrorofthesamplemean?
A) 0.8.
B) 0.4.
C) 2.0.
Explanation
Thestandarderrorofthesamplemeanisestimatedbydividingthestandarddeviationofthesamplebythesquarerootofthe
samplesize.Thestandarddeviationofthesampleiscalculatedbytakingthepositivesquarerootofthesamplevariance41/2=
2.Applyingtheformula:sx=s/n1/2=2/(25)1/2=2/5=0.4.
Whichofthefollowingstatementsaboutsamplestatisticsisleastaccurate?
A) Thezstatisticisusedfornonnormaldistributionswithknownvariance,but
onlyforlargesamples.
B) Thereisnosamplestatisticfornonnormaldistributionswithunknownvariancefor
eithersmallorlargesamples.
C) Thezstatisticisusedtotestnormallydistributeddatawithaknownvariance,whether
testingalargeorasmallsample.
Explanation
Thereisnosamplestatisticfornonnormaldistributionswithunknownvarianceforsmallsamples,butthetstatisticisusedwhenthe
samplesizeislarge.
Whichofthefollowingstatementsaboutsamplingandestimationismostaccurate?
A) Apointestimateisasingleestimateofanunknownpopulationparameter
calculatedasasamplemean.
B) Timeseriesdataareobservationsoverindividualunitsatapointintime.
C) Aconfidenceintervalestimateconsistsofarangeofvaluesthatbracketthe
parameterwithaspecifiedlevelofprobability,1.
Explanation
Timeseriesdataareobservationstakenatspecificandequallyspacedpoints.
Aconfidenceintervalestimateconsistsofarangeofvaluesthatbrackettheparameterwithaspecifiedlevelofprobability,1
.
Whichofthefollowingstatementsregardingconfidenceintervalsismostaccurate?
A) Thelowerthealphalevel,thewidertheconfidenceinterval.
B) Thehigherthealphalevel,thewidertheconfidenceinterval.
C) Thelowerthedegreeofconfidence,thewidertheconfidenceinterval.
Explanation
Ahigherdegreeofconfidencerequiresawiderconfidenceinterval.Thedegreeofconfidenceisequaltooneminusthealpha
level,andsothewidertheconfidenceinterval,thehigherthedegreeofconfidenceandthelowerthealphalevel.Notethatthe
loweralphalevelrequiresahigherreliabilityfactorwhichresultsinthewiderconfidenceinterval.
Constructa90%confidenceintervalforthemeanstartingsalariesoftheCFAcharterholdersifasampleof100recentCFA
charterholdersgivesameanof50.Assumethatthepopulationvarianceis900.Allmeasurementsarein$1,000.
A) 501.645(900).
B) 501.645(30).
C) 501.645(3).
Explanation
1.645(30/10)=501.645(3).Thisisinterpretedtomeanthatweare90%confidentthattheaboveintervalcontains
thetruemeanstartingsalariesofCFAcharterholders.
Thesamplemeanisanunbiasedestimatorofthepopulationmeanbecausethe:
A) samplemeanprovidesamoreaccurateestimateofthepopulationmeanasthe
samplesizeincreases.
B) samplingdistributionofthesamplemeanhasthesmallestvarianceofanyother
unbiasedestimatorsofthepopulationmean.
C) expectedvalueofthesamplemeanisequaltothepopulationmean.
Explanation
Anunbiasedestimatorisoneforwhichtheexpectedvalueoftheestimatorisequaltotheparameteryouaretryingto
estimate.
ThesamplemeanreturnofBartlettCo.is3%andthestandarddeviationis6%basedon30monthlyreturns.Whatisthe
confidenceintervalofatwotailedztestofthepopulationmeanwitha5%levelofsignificance?
A) 2.61to3.39.
B) 1.90to4.10.
C) 0.85to5.15.
Explanation
Thestandarderrorofthesampleisthestandarddeviationdividedbythesquarerootofn,thesamplesize.6%/301/2=
1.0954%.
Theconfidenceinterval=pointestimate+/(reliabilityfactorstandarderror)
confidenceinterval=3+/(1.961.0954)=0.85to5.15
Astatisticalestimatorisunbiasedif:
A) theexpectedvalueoftheestimatorisequaltothepopulationparameter.
B) anincreaseinsamplesizedecreasesthestandarderror.
C) thevarianceofitssamplingdistributionissmallerthanthatofallotherestimators.
Explanation
Desirablepropertiesofanestimatorareunbiasedness,efficiency,andconsistency.Anestimatorisunbiasedifitsexpected
valueisequaltothepopulationparameteritisestimating.Anestimatorisefficientifthevarianceofitssamplingdistributionis
smallerthanthatofallotherunbiasedestimators.Anestimatorisconsistentifanincreaseinsamplesizedecreasesthe
standarderror.
Thepracticeofrepeatedlyusingthesamedatabasetosearchforpatternsuntiloneisfoundiscalled:
A) datamining.
C) datasnooping.
Explanation
Thepracticeofdatamininginvolvesanalyzingthesamedatasoastodetectapattern,whichmaynotreplicateinotherdata
sets,alsoknownastorturingthedatauntilitconfesses.
Thesamplemeanisaconsistentestimatorofthepopulationmeanbecausethe:
A) samplingdistributionofthesamplemeanhasthesmallestvarianceofany
otherunbiasedestimatorsofthepopulationmean.
B) expectedvalueofthesamplemeanisequaltothepopulationmean.
C) samplemeanprovidesamoreaccurateestimateofthepopulationmeanasthe
samplesizeincreases.
Explanation
Aconsistentestimatorprovidesamoreaccurateestimateoftheparameterasthesamplesizeincreases.
SunilHameedisareporterwiththeweeklyperiodicalTheFunFinanceTimes.Today,heisscheduledtointerviewaresearcherwho
claimstohavedevelopedasuccessfultechnicaltradingstrategybasedontradingontheCEO'sbirthday(samplewastakenfromthe
Fortune500).Aftertheinterview,Hameedsummarizeshisnotes(partialtranscriptasfollows).Theresearcher:
wasdefensiveaboutthelackofeconomictheoryconsistentwithhisresults.
usedthesamedatabaseofdataforallhistestsandhasnottestedthetradingruleonoutofsampledata.
excludedstocksforwhichhecouldnotdeterminetheCEO'sbirthday.
usedasamplecutoffdateofthemonthbeforethelatestmarketcorrection.
Selectthechoicethatbestcompletesthefollowing:Hameedconcludesthattheresearchisflawedbecausethedataandprocessare
biasedby:
A) datamining,sampleselectionbias,andtimeperiodbias.
B) datamining,timeperiodbias,andlookaheadbias.
C) sampleselectionbiasandtimeperiodbias.
Explanation
Evidencethattheresearcheruseddataminingisthathewasdefensiveaboutthelackofeconomictheoryconsistentwithhisresultsand
thatheusedthesamedatabaseofdataforallhistests.Onewaytoavoiddataminingistotestthetradingruleonoutofsampledata.
Sampleselectionbiasoccurswhensomedataissystematicallyexcludedfromtheanalysis,usuallybecauseitisnotavailable.Here,the
researcherexcludedstocksforwhichhecouldnotdeterminetheCEO'sbirthday.Timeperiodbiascanresultifthetimeperiodistooshort
ortoolong.Here,itislikelythattheperiodwastooshortsincetheresearcherusedacutoffdateofthemonthbeforethelatestmarket
correction.Note:thiscouldbeanadditionalexampleofdatamining.
Wearenotgivenenoughinformationtodetermineiftheresearcherisguiltyoflookaheadbias(whichoccurswhentheanalystuses
historicaldatathatwasnotpubliclyavailableatthetimebeingstudied).
Whensamplingfromanonnormaldistributionwithanknownvariance,whichstatisticshouldbeusedifthesamplesizeislarge
andiftherespectivesamplesizeissmall?
A) zstatisticzstatistic.
B) tstatistictstatistic.
C) zstatisticnotavailable.
Explanation
Whenyouaresamplingfroma: andthesamplesizeissmall,usea:andthesamplesizeislarge,usea:
Normaldistributionwithaknownvariance zstatistic zstatistic

Normaldistributionwithanunknownvariance tstatistic tstatistic*
Nonnormaldistributionwithaknownvariance notavailable zstatistic
Nonnormaldistributionwithanunknownvariance notavailable tstatistic*
*Thezstatisticistheoreticallyacceptablehere,butuseofthetstatisticismoreconservative.
Thesampleofpersquarefootsalesfor100U.S.retailersinDecember2004isanexampleof:
A) timeseriesdata.
B) crosssectionaldata.
C) unbiaseddata.
Explanation
Crosssectionaldataareasampleofobservationstakenatasinglepointintime.Atimeseriesisasampleofobservations
takenatspecificandequallyspacedpointsintime.
TheaverageU.S.dollar/Euroexchangeratefromasampleof36monthlyobservationsis$1.00/Euro.Thepopulationvariance
is0.49.Whatisthe95%confidenceintervalforthemeanU.S.dollar/Euroexchangerate?
A) $0.8075to$1.1925.
B) $0.7713to$1.2287.
C) $0.5100to$1.4900.
Explanation
Thepopulationstandarddeviationisthesquarerootofthevariance(0.49=0.7).Becauseweknowthepopulationstandard
deviation,weusethezstatistic.Thezstatisticreliabilityfactorfora95%confidenceintervalis1.960.Theconfidenceinterval
is$1.001.960($0.7/36)or$1.00$0.2287.
FrankGrinderistryingtointroducesamplingintothequalitycontrolprogramofanoldlinemanufacturer.Currently,eachitem
isindividuallyinspectedtomakesureitmeetssizetolerances.ForallitemsmanufacturedduringAugust,thestandard
deviationofsizewas0.02centimeters.IfGrindertakesasampleof30itemsandfindsastandarddeviationofsizeof0.019
centimeters,whatisthestandarderrorofthesamplemean?
A) 0.00365.
B) 0.00600.
C) 0.00200.
Explanation
Ifweknowthestandarddeviationofthepopulation(inthiscasewedo),thenthestandarderrorofthesamplemean=the
standarddeviationofthepopulation/thesquarerootofthesamplesize=0.02/30=0.00365centimeters.
Samplingerroristhe:
A) differencebetweenasamplestatisticanditscorrespondingpopulation
parameter.
B) estimationerrorcreatedbyusinganonrandomsample.
C) differencebetweenthepointestimateofthemeanandthemeanofthesampling
distribution.
Explanation
Samplingerroristhedifferencebetweenanysamplestatistic(themean,variance,orstandarddeviationofthesample)andits
correspondingpopulationparameter(themean,varianceorstandarddeviationofthepopulation).Forexample,thesampling
errorforthemeanisequaltothesamplemeanminusthepopulationmean.
df 0.100 0.050 0.025 0.01 0.005 0.0005
df 0.20 0.10 0.05 0.02 0.01 0.001
40 1.303 1.684 2.021 2.423 2.704 3.551
60 1.296 1.671 2.000 2.390 2.660 3.460
120 1.289 1.658 1.980 2.358 2.617 3.373
Theapproximate99%confidenceintervalforthepopulationmeanbasedonasampleof60returnswithameanof7%anda
samplestandarddeviationof25%isclosestto:
A) 1.584%to14.584%.
B) 1.584%to15.584%.
C) 0.546%to13.454%.
Explanation
Thestandarderrorforthemean=s/(n)0.5=25%/(60)0.5=3.227%.Thecriticalvaluefromthettableshouldbebasedon60
1=59df.Sincethestandardtablesdonotprovidethecriticalvaluefor59dftheclosestavailablevalueisfor60df.This
leavesuswithanapproximateconfidenceinterval.Basedon99%confidenceanddf=60,thecriticaltvalueis2.660.
Thereforethe99%confidenceintervalisapproximately:7%2.660(3.227)or7%8.584%or1.584%to15.584%.
Ifyouuseazstatistic,theconfidenceintervalis7%2.58(3.227)=1.326%to15.326%,whichisclosesttothecorrect
choice.
Whichoneofthefollowingdistributionsisdescribedentirelybythedegreesoffreedom?
A) Normaldistribution.
B) Lognormaldistribution.
C) Student'stdistribution.
Explanation
Student'stdistributionisdefinedbyasingleparameterknownasthedegreesoffreedom.
Ifthenumberofoffspringforfemalesofacertainmammalianspecieshasameanof16.4andastandarddeviationof3.2,
whatwillbethestandarderrorofthesamplemeanforasurveyof25femalesofthespecies?
A) 3.20.
B) 1.28.
C) 0.64.
Explanation
Thestandarderrorofthesamplemeanwhenthestandarddeviationofthepopulationisknownisequaltothestandard
deviationofthepopulationdividedbythesquarerootofthesamplesize.Inthiscase,3.2/25=0.64.
df 0.100 0.050 0.025 0.01 0.005 0.0005
df 0.20 0.10 0.05 0.02 0.01 0.001
40 1.303 1.684 2.021 2.423 2.704 3.551
60 1.296 1.671 2.000 2.390 2.660 3.460
120 1.289 1.658 1.980 2.358 2.617 3.373
Theaveragesalaryforasampleof61CFAcharterholderswith10yearsexperienceis$200,000,andthesamplestandard
deviationis$80,000.Assumethepopulationisnormallydistributed.Whichofthefollowingisa99%confidenceintervalforthe
populationmeansalaryofCFAcharterholderswith10yearsofexperience?
A) $172,754to$227,246.
B) $172,514to$227,486.
C) $160,000to$240,000.
Explanation
Ifthedistributionofthepopulationisnormal,butwedon'tknowthepopulationvariance,wecanusetheStudent'stdistribution
toconstructaconfidenceinterval.Becausethereare61observations,thedegreesoffreedomare60.Fromthestudent'st
table,wecandeterminethatthereliabilityfactorfort/2,ort0.005,is2.660.Thenthe99%confidenceintervalis$200,000
2.660($80,000/61)or$200,0002.660$10,243,or$200,000$27,246.
AnanalystdividesthepopulationofU.S.stocksinto10equallysizedsubsamplesbasedonmarketvalueofequity.Thenhe
takesarandomsampleof50fromeachofthe10subsamplesandpoolsthedatatocreateasampleof500.Thisisan
exampleof:
A) stratifiedrandomsampling.
B) systematiccrosssectionalsampling.
C) simplerandomsampling.
Explanation
Instratifiedrandomsamplingwefirstdividethepopulationintosubgroups,calledstrata,basedonsomeclassificationscheme.
Thenwerandomlyselectasamplefromeachstratumandpooltheresults.Thesizeofthesamplesfromeachstrataisbased
ontherelativesizeofthestratarelativetothepopulation.Simplerandomsamplingisamethodofselectingasampleinsuch
awaythateachitemorpersoninthepopulationbeingstudiedhasthesame(nonzero)likelihoodofbeingincludedinthe
sample.
WhichstatementbestdescribesthepropertiesofStudent'stdistribution?Thetdistributionis:
A) symmetrical,anddefinedbyasingleparameter.
B) skewed,anddefinedbyasingleparameter.
C) symmetrical,anddefinedbytwoparameters.
Explanation
Thetdistributionissymmetricallikethenormaldistributionbutunlikethenormaldistributionisdefinedbyasingleparameter
knownasthedegreesoffreedom.
Astudyreportsthatfrom2002to2004theaveragereturnongrowthstockswastwiceaslargeasthatofvaluestocks.These
resultsmostlikelyreflect:
A) timeperiodbias.
B) survivorshipbias.
C) lookaheadbias.
Explanation
Timeperiodbiascanresultifthetimeperiodoverwhichthedataisgatherediseithertooshortbecausetheresultsmay
reflectphenomenonspecifictothattimeperiod,orifachangeoccurredduringthetimeframethatwouldresultintwodifferent
returndistributions.Inthiscasethetimeperiodsampledisprobablynotlargeenoughtodrawanyconclusionsaboutthelong
termrelativeperformanceofvalueandgrowthstocks,evenifthesamplesizewithinthattimeperiodislarge.
Lookaheadbiasoccurswhentheanalystuseshistoricaldatathatwasnotpubliclyavailableatthetimebeingstudied.
Survivorshipbiasisaformofsampleselectionbiasinwhichtheobservationsinthesamplearebiasedbecausetheelements
ofthesamplethatsurviveduntilthesamplewastakenaredifferentthantheelementsthatdroppedoutofthepopulation.
df 0.100 0.050 0.025 0.01 0.005 0.0005
df 0.20 0.10 0.05 0.02 0.01 0.001
40 1.303 1.684 2.021 2.423 2.704 3.551
60 1.296 1.671 2.000 2.390 2.660 3.460
120 1.289 1.658 1.980 2.358 2.617 3.373
Fromasampleof41monthlyobservationsoftheS&PMidCapindex,themeanmonthlyreturnis1%andthesamplevariance
is36.Forwhichofthefollowingintervalscanonebeclosestto95%confidentthatthepopulationmeaniscontainedinthat
interval?
A) 1.0%1.6%.
B) 1.0%6.0%.
C) 1.0%1.9%.
Explanation
Ifthedistributionofthepopulationisnonnormal,butwedon'tknowthepopulationvariance,wecanusetheStudent'st
distributiontoconstructaconfidenceinterval.Thesamplestandarddeviationisthesquarerootofthevariance,or6%.
Becausethereare41observations,thedegreesoffreedomare40.FromtheStudent'stdistribution,wecandeterminethat
thereliabilityfactorfort0.025,is2.021.Thenthe95%confidenceintervalis1.0%2.021(6/41)or1.0%1.9%.
Whichoneofthefollowingstatementsaboutthetdistributionismostaccurate?
A) Thetdistributionapproachesthestandardnormaldistributionasthenumberof
degreesoffreedombecomeslarge.
B) Thetdistributionistheonlyappropriatedistributiontousewhenconstructing
confidenceintervalsbasedonlargesamples.
C) Comparedtothenormaldistribution,thetdistributionhaslessprobabilityinthetails.
Explanation
Asthenumberofdegreesoffreedomgrows,thetdistributionapproachestheshapeofthestandardnormaldistribution.
Comparedtothenormaldistribution,thetdistributionhasfattertails.Whenchoosingadistribution,threefactorsmustbe
considered:samplesize,whetherpopulationvarianceisknown,andifthedistributionisnormal.
Theaveragemutualfundreturncalculatedfromasampleoffundswithsignificantsurvivorshipbiaswouldmostlikelybe:
A) largerthanthemeanreturnofthepopulationofallmutualfunds.
B) smallerthanthemeanreturnofthepopulationofallmutualfunds.
C) anunbiasedestimateofthemeanreturnofthepopulationofallmutualfundsifthe
samplesizewaslargeenough.
Explanation
Ifwetrytodrawanyconclusionsfromananalysisofamutualfunddatabasewithsurvivorshipbias,weoverestimatethe
averagemutualfundreturn,becausewedon'tincludethepoorerperformingfundsthatdroppedout.Alargersamplesize
fromadatabasewithsurvivorshipbiaswillstillresultinabiasedestimate.
ThomasMerton,acarindustryanalyst,wantstoinvestigatearelationshipbetweenthetypesofadsusedinadvertising
campaignsandsalestocustomersincertainagegroups.Inordertomakesureheincludesmanufacturersofallsizes,Merton
dividestheindustryintofoursizegroupsanddrawsrandomsamplesfromeachgroup.WhatsamplingmethodisMerton
using?
A) Crosssectionalsampling.
B) Stratifiedrandomsampling.
C) Simplerandomsampling.
Explanation
Instratifiedrandomsampling,wefirstdividethepopulationintosubgroupsbasedonsomerelevantcharacteristic(s)andthen
makerandomdrawsfromeachgroup.
Samplingerrorcanbedefinedas:
A) rejectingthenullhypothesiswhenitistrue.
B) thedifferencebetweenasamplestatisticanditscorrespondingpopulation
parameter.
C) thestandarddeviationofasamplingdistributionofthesamplemeans.
Explanation
Thisisthedefinition.
Alocalhighschoolbasketballteamhad18homegamesthisseasonandaveraged58pointspergame.Ifweassumethatthe
numberofpointsmadeinhomegamesisnormallydistributed,whichofthefollowingismostlikelytherangeofpointsfora
confidenceintervalof90%?
A) 34to82.
B) 24to78.
C) 26to80.
Explanation
Thisquestionhasabitofatrick.Toanswerthisquestion,rememberthatthemeanisatthemidpointoftheconfidence
interval.Thecorrectconfidenceintervalwillhaveamidpointof58.(34+82)/2=58.
df 0.100 0.050 0.025 0.01 0.005 0.0005
df 0.20 0.10 0.05 0.02 0.01 0.001
18 1.330 1.734 2.101 2.552 2.878 3.922
19 1.328 1.729 2.093 2.539 2.861 3.883
20 1.325 1.725 2.086 2.528 2.845 3.850
Atrafficengineeristryingtomeasuretheeffectsofcarpoolonlylanesontheexpressway.Basedonasampleof20carsat
rushhour,hefindsthatthemeannumberofoccupantspercaris2.5,withastandarddeviationof0.4.Ifthepopulationis
normallydistributed,whatistheconfidenceintervalatthe5%significancelevelforthenumberofoccupantspercar?
A) 2.387to2.613.
B) 2.410to2.589.
C) 2.313to2.687.
Explanation
Thereliabilityfactorcorrespondingwitha5%significancelevel(95%confidencelevel)fortheStudent'stdistributionwith(20
1)degreesoffreedomis2.093.Theconfidenceintervalisequalto:2.52.093(0.4/20)=2.313to2.687.(Wemustusethe
Student'stdistributionandreliabilityfactorsbecauseofthesmallsamplesize.)
With60observations,whatistheappropriatenumberofdegreesoffreedomtousewhencarryingoutastatisticaltestonthe
meanofapopulation?
A) 59.
B) 61.
C) 60.
Explanation
Whenperformingastatisticaltestonthemeanofapopulationbasedonasampleofsizen,thenumberofdegreesof
freedomisn1sinceoncethemeanisestimatedfromasamplethereareonlyn1observationsthatarefreetovary.Inthis
casetheappropriatenumberofdegreesoffreedomtouseis601=59.
Whensamplingfromapopulation,themostappropriatesamplesize:
A) minimizesthesamplingerrorandthestandarddeviationofthesamplestatisticaround
itspopulationvalue.
B) involvesatradeoffbetweenthecostofincreasingthesamplesizeandthe
valueofincreasingtheprecisionoftheestimates.
C) isatleast30.
Explanation
Alargersamplereducesthesamplingerrorandthestandarddeviationofthesamplestatisticarounditspopulationvalue.
However,thisdoesnotimplythatthesampleshouldbeaslargeaspossible,orthatthesamplingerrormustbeassmallas
canbeachieved.Largersamplesmightcontainobservationsthatcomefromadifferentpopulation,inwhichcasetheywould
notnecessarilyimprovetheestimatesofthepopulationparameters.Costalsoincreaseswiththesamplesize.Whenthecost
ofincreasingthesamplesizeisgreaterthanthevalueoftheextraprecisiongained,increasingthesamplesizeisnot
appropriate.
Fromapopulationwithaknownstandarddeviationof15,asampleof25observationsistaken.Calculatethestandarderrorofthesample
mean.
A) 0.60.
B) 1.67.
C) 3.00.
Explanation
Thestandarderrorofthesamplemeanequalsthestandarddeviationofthepopulationdividedbythesquarerootofthesamplesize:s x=
s/n1/2=15/251/2=3.
Whenisthetdistributiontheappropriatedistributiontouse?Thetdistributionistheappropriatedistributiontousewhen
constructingconfidenceintervalsbasedon:
A) largesamplesfrompopulationswithknownvariancethatarenonnormal.
B) smallsamplesfrompopulationswithknownvariancethatareatleast
approximatelynormal.
C) smallsamplesfrompopulationswithunknownvariancethatareatleastapproximately
normal.
Explanation
Thetdistributionistheappropriatedistributiontousewhenconstructingconfidenceintervalsbasedonsmallsamplesfrom
populationswithunknownvariancethatareeithernormalorapproximatelynormal.
Asamplesizeof25isselectedfromanormalpopulation.Thissamplehasameanof15andthepopulationvarianceis4.
Usingthisinformation,constructa95%confidenceintervalforthepopulationmean,m.
A) 151.96(2).
B) 151.96(0.4).
C) 151.96(0.8).
Explanation
1.96(0.4).
Asampleof25juniorfinancialanalystsgivesameansalary(inthousands)of60.Assumethepopulationvarianceisknownto
be100.A90%confidenceintervalforthemeanstartingsalaryofjuniorfinancialanalystsismostaccuratelyconstructedas:
A) 60+1.645(4).
B) 60+1.645(10).
C) 60+1.645(2).
Explanation
anditspositivesquarerootisthestandarddeviationofthepopulation):xz/2(/n1/2)=60+/1.645(1001/2/251/2)=60
+/1.645(10/5)=60+/1.6452.
Theaveragereturnonsmallstocksovertheperiod19261997was17.7%,andthestandarderrorofthesamplewas33.9%.
The95%confidenceintervalforthereturnonsmallstocksinanygivenyearis:
A) 48.7%to84.1%.
B) 16.8%to18.6%.
C) 16.2%to51.6%.
Explanation
A95%confidencelevelis1.96standarddeviationsfromthemean,so0.1771.96(0.339)=(48.7%,84.1%).
Asampleof100individualinvestorshasameanportfoliovalueof$28,000withastandarddeviationof$4,250.The95%
confidenceintervalforthepopulationmeanisclosestto:
A) $27,575to$28,425.
B) $19,500to$28,333.
C) $27,159to$28,842.
Explanation
Confidenceinterval=meantc{S/n}
=28,000(1.98)(4,250/100)or27,159to28,842
Ifyouuseazstatisticbecauseofthelargesamplesize,youget28,000(1.96)(4,250/100)=27,167to28,833,whichis
closesttothecorrectanswer.
Whichofthefollowingstatementsaboutsamplingandestimationismostaccurate?
A) Thestandarderrorofthesamplemeanswhenthestandarddeviationofthe
populationisknownequals/n,where=samplestandarddeviationadjustedbyn
1.
B) Theprobabilitythataparameterlieswithinarangeofestimatedvaluesisgiven
by.
C) Thestandarderrorofthesamplemeanswhenthestandarddeviationofthe
populationisunknownequalss/n,wheres=samplestandarddeviation.
Explanation
Theprobabilitythataparameterlieswithinarangeofestimatedvaluesisgivenby1.Thestandarderrorofthesample
meanswhenthestandarddeviationofthepopulationisknownequals/n,where=populationstandarddeviation.
Whichofthefollowingstatementsregardingthecentrallimittheorem(CLT)isleastaccurate?TheCLT:
A) statesthatforapopulationwithmeanandvariance2,thesamplingdistributionof
thesamplemeansforanysampleofsizenwillbeapproximatelynormallydistributed.
B) givesthevarianceofthedistributionofsamplemeansas 2/n,where 2isthe

populationvarianceandnisthesamplesize.
C) holdsforanypopulationdistribution,assumingalargesamplesize.
Explanation
Thisquestionisaskingyoutoselecttheinaccuratestatement.TheCLTstatesthatforapopulationwithmeanandafinite
variance2,thesamplingdistributionofthesamplemeansbecomesapproximatelynormallydistributedasthesamplesize
becomeslarge.Theotherstatementsareaccurate.
Studiesofperformanceofasampleofmutualfundmanagersmostlikelysufferfrom:
A) lookaheadbias.
C) survivorshipbias.
Explanation
Studiesoftheperformanceofmutualfundmanagersoftensufferfromsurvivorshipbiasaspoorlyperformingfundsareclosed
downandarenotincludedinthesample.
Whichofthefollowingstatementsaboutsamplingerrorsisleastaccurate?
A) Samplingerrorsareerrorsduetothewrongsamplebeingselectedfromthe
population.
B) Samplingerroristhedifferencebetweenasamplestatisticandits
correspondingpopulationparameter.
C) Samplingerroristheerrormadeinestimatingthepopulationmeanbasedona
samplemean.
Explanation
Samplingerroristhedifferencebetweenasamplestatistic(themean,variance,orstandarddeviationofthesample)andits
correspondingpopulationparameter(themean,variance,orstandarddeviationofthepopulation).
Thesamplingdistributionofastatisticis:
A) alwaysastandardnormaldistribution.
B) thesameastheprobabilitydistributionoftheunderlyingpopulation.
C) theprobabilitydistributionconsistingofallpossiblesamplestatisticscomputedfrom
samplesofthesamesizedrawnfromthesamepopulation.
Explanation
Asamplestatisticitselfisarandomvariable,soitalsohasaprobabilitydistribution.Forexample,supposewestartwitha
sampleofthepricesof200stocks,andwecalculatethesamplemeanofarandomsampleof40ofthosestocks.Ifwerepeat
thismanytimes,wewillhavemanydifferentestimatesofthesamplemean.Thedistributionoftheseestimatesofthemeanis
thesamplingdistributionofthemean.Astatistic'ssamplingdistributionisnotnecessarilynormalorthesameasthatofthe
population.
Thecentrallimittheoremconcernsthesamplingdistributionofthe:
A) samplemean.
B) samplestandarddeviation.
C) populationmean.
Explanation
Thecentrallimittheoremtellsusthatforapopulationwithameanmandafinitevariance2,thesamplingdistributionofthe
samplemeansofallpossiblesamplesofsizenwillapproachanormaldistributionwithameanequaltoandavariance
equalto2/nasngetslarge.
Arangeofestimatedvalueswithinwhichtheactualvalueofapopulationparameterwillliewithagivenprobabilityof1is
a(n):
A) (1)percentconfidenceinterval.
B) percentconfidenceinterval.
C) percentpointestimate.
Explanation
A95%confidenceintervalforthepopulationmean(=5%),forexample,isarangeofestimateswithinwhichtheactualvalue
ofthepopulationmeanwillliewithaprobabilityof95%.Pointestimates,ontheotherhand,aresingle(sample)valuesusedto
estimatepopulationparameters.Thereisnosuchthingasapercentpointestimateora(1)percentcrosssectionalpoint
estimate.
Atrafficengineeristryingtomeasuretheeffectsofcarpoolonlylanesontheexpressway.Basedonasampleof100carsat
rushhour,hefindsthatthemeannumberofoccupantspercaris2.5,andthesamplestandarddeviationis0.4.Whatisthe
standarderrorofthesamplemean?
A) 1.00.
B) 0.04.
C) 5.68.
Explanation
Thestandarderrorofthesamplemeanwhenthestandarddeviationofthepopulationisnotknownisestimatedbythe
standarddeviationofthesampledividedbythesquarerootofthesamplesize.Inthiscase,0.4/100=0.04.
Ananalysthasreviewedmarketdataforreturnsfrom19801990extensively,searchingforpatternsinthereturns.Shehas
foundthatwhentheendofthemonthfallsonaSaturday,thereareusuallypositivereturnsonthefollowingThursday.She
hasengagedin:
A) datasnooping.
B) biasedselection.
C) datamining.
Explanation
Dataminingreferstotheextensivereviewofthesamedatabasesearchingforpatterns.
df 0.100 0.050 0.025 0.01 0.005 0.0005

df 0.20 0.10 0.05 0.02 0.01 0.001
24 1.318 1.711 2.064 2.492 2.797 3.745
25 1.316 1.708 2.060 2.485 2.787 3.725
26 1.315 1.706 2.056 2.479 2.779 3.707
27 1.314 1.703 2.052 2.473 2.771 3.690
Arandomsampleof25Indianafarmshadameannumberofcattleperfarmof27withasamplestandarddeviationoffive.
Assumingthepopulationisnormallydistributed,whatwouldbethe95%confidenceintervalforthenumberofcattleperfarm?
A) 23to31.
B) 25to29.
C) 22to32.
Explanation
Thestandarderrorofthesamplemean=5/25=1
Degreesoffreedom=251=24
FromStudent'sttable,t5/2=2.064
Theconfidenceintervalis:272.064(1)=24.94to29.06or25to29.
Whichofthefollowingwouldresultinawiderconfidenceinterval?A:
A) higherdegreeofconfidence.
B) higheralphalevel.
C) greaterlevelofsignificance.
Explanation
Ahigherdegreeofconfidence(e.g.99%insteadof95%)wouldrequireahigherreliabilityfactor(2.575insteadof1.96
assuminganormaldistribution).Awiderconfidenceintervalcorrespondstoaloweralphasignificancelevelandthepoint
estimatedoesnotaffectthewidthoftheconfidenceinterval.
Whichofthefollowingcharacterizesthetypicalconstructionofaconfidenceintervalmostaccurately?
A) Standarderror+/(Pointestimate/Reliabilityfactor).
B) Pointestimate+/(Standarderror/Reliabilityfactor).
C) Pointestimate+/(ReliabilityfactorxStandarderror).
Explanation
Wecanconstructaconfidenceintervalbyaddingandsubtractingsomeamountfromthepointestimate.Ingeneral,
confidenceintervalshavethefollowingform:
Pointestimate+/ReliabilityfactorxStandarderror
Pointestimate=thevalueofasamplestatisticofthepopulationparameter
Reliabilityfactor=anumberthatdependsonthesamplingdistributionofthepointestimateandtheprobabilitythepoint
estimatefallsintheconfidenceinterval(1)
Standarderror=thestandarderrorofthepointestimate
Ananalystisaskedtocalculatestandarddeviationusingmonthlyreturnsoverthelastfiveyears.Thesedataarebest
describedas:
A) crosssectionaldata.
B) systematicsamplingdata.
C) timeseriesdata.
Explanation
Timeseriesdataaretakenatequallyspacedintervals,suchasmonthly,quarterly,orannual.Crosssectionaldataaretaken
atasinglepointintime.Anexampleofcrosssectionaldataisdividendyieldson500stocksasoftheendofayear.
AccordingtotheCentralLimitTheorem,thedistributionofthesamplemeansisapproximatelynormalif:
A) thesamplesizen>30.
B) theunderlyingpopulationisnormal.
C) thestandarddeviationofthepopulationisknown.
Explanation
TheCentralLimitTheoremstatesthatifthesamplesizeissufficientlylarge(i.e.greaterthan30)thesamplingdistributionof
thesamplemeanswillbeapproximatelynormal.
Theconfidenceintervalforaparameteriscalculatedas:
A) PointEstimateStandardError.
B) PointEstimateReliabilityFactorStandardError.
C) PointEstimateReliabilityFactorStandardError.
Explanation
TheconfidenceintervalforaparameteriscalculatedasPointEstimateReliabilityFactorStandardError.Thereliability
factorisbasedontheassumeddistributionofthepointestimateandthedegreeofconfidence(1a)fortheconfidence
interval.
df 0.100 0.050 0.025 0.01 0.005 0.0005
df 0.20 0.10 0.05 0.02 0.01 0.001
30 1.310 1.697 2.042 2.457 2.750 3.646
40 1.303 1.684 2.021 2.423 2.704 3.551
60 1.296 1.671 2.000 2.390 2.660 3.460
120 1.289 1.658 1.980 2.358 2.617 3.373
BasedonStudent'stdistribution,the95%confidenceintervalforthepopulationmeanbasedonasampleof40interestrates
withasamplemeanof4%andasamplestandarddeviationof15%isclosestto:
A) 0.794%to8.794%.
B) 1.261%to6.739%.
C) 0.851%to8.851%.
Explanation
Thestandarderrorforthemean=s/(n)0.5=15%/(40)0.5=2.372%.Thecriticalvaluefromthettableshouldbebasedon401
=39df.Sincethestandardtablesdonotprovidethecriticalvaluefor39dftheclosestavailablevalueisfor40df.Thisleaves
uswithanapproximateconfidenceinterval.Basedon95%confidenceanddf=40,thecriticaltvalueis2.021.Thereforethe
95%confidenceintervalisapproximately:4%2.021(2.372)or4%4.794%or0.794%to8.794%.
Atrafficengineeristryingtomeasuretheeffectsofcarpoolonlylanesontheexpressway.Basedonasampleof1,000carsat
rushhour,hefindsthatthemeannumberofoccupantspercaris2.5,withastandarddeviationof0.4.Assumingthatthe
populationisnormallydistributed,whatistheconfidenceintervalatthe5%significancelevelforthenumberofoccupantsper
car?
A) 2.475to2.525.
B) 2.288to2.712.
C) 2.455to2.555.
Explanation
TheZscorecorrespondingwitha5%significancelevel(95%confidencelevel)is1.96.Theconfidenceintervalisequalto:2.5
1.96(0.4/1,000)=2.475to2.525.(WecanuseZscoresbecausethesizeofthesampleissolarge.)
Supposethemeandebt/equityratioofthepopulationofallbanksintheUnitedStatesis20andthepopulationvarianceis25.
Abankingindustryanalystusesacomputerprogramtoselectarandomsampleof50banksfromthispopulationandcompute
thesamplemean.Theprogramrepeatsthisexercise1000timesandcomputesthesamplemeaneachtime.Accordingtothe
centrallimittheorem,thesamplingdistributionofthe1000samplemeanswillbeapproximatelynormalifthepopulationof
bankdebt/equityratioshas:
A) aStudent'stdistribution,becausethesamplesizeisgreaterthan30.
B) anormaldistribution,becausethesampleisrandom.
C) anyprobabilitydistribution.
Explanation
Thecentrallimittheoremtellsusthatforapopulationwithameanandafinitevariance2,thesamplingdistributionofthe
samplemeansofallpossiblesamplesofsizenwillbeapproximatelynormallydistributedwithameanequaltoanda
varianceequalto2/n,nomatterthedistributionofthepopulation,assumingalargesamplesize.
FrankGrinderistryingtointroducesamplingintothequalitycontrolprogramofanoldlinemanufacturer.Grindersamples38
itemsandfindsthatthestandarddeviationinsizeis0.019centimeters.Whatisthestandarderrorofthesamplemean?
A) 0.00204.
B) 0.00308.
C) 0.00615.
Explanation
Ifwedonotknowthestandarddeviationofthepopulation(inthiscasewedonot),thenweestimatethestandarderrorofthe
samplemean=thestandarddeviationofthesample/thesquarerootofthesamplesize=0.019/38=0.00308centimeters.
Thefollowingdataareavailableonasampleofadvertisingbudgetsof81U.S.manufacturingcompanies:Themeanbudgetis
$10million.Thesamplevarianceis36million.Thestandarderrorofthesamplemeanis:
A) $667.
B) $1,111.
C) $400.
Explanation
Thesamplestandarddeviationisthesquarerootofthevariance:(36,000,000)1/2=$6,000.Thestandarderrorofthesample
meanisestimatedbydividingthestandarddeviationofthesamplebythesquarerootofthesamplesize:mean=s/(n)1/2=
6,000/(81)1/2=$667.
Ifthetruemeanofapopulationis16.62,accordingtothecentrallimittheorem,themeanofthedistributionofsamplemeans,
forallpossiblesamplesizesnwillbe:
A) indeterminateforsamplewithn<30.
B) 16.62.
C) 16.62/n.
Explanation
Accordingtothecentrallimittheorem,themeanofthedistributionofsamplemeanswillbeequaltothepopulationmean.n>
30isonlyrequiredfordistributionsofsamplemeanstoapproachnormaldistribution.
Ananalysthascompiledstockreturnsforthefirst10daysoftheyearforasampleoffirmsandestimatedthecorrelation
betweenthesereturnsandchangesinbookvalueforthesefirmsoverthejustendedyear.Whatobjectioncouldberaisedto
suchacorrelationbeingusedasatradingstrategy?
A) Thestudysuffersfromlookaheadbias.
B) Useofyearendvaluescausesatimeperiodbias.
C) Useofyearendvaluescausesasampleselectionbias.
Explanation
Thestudysuffersfromlookaheadbiasbecausetradersatthebeginningoftheyearwouldnotbeabletoknowthebookvalue
changes.Financialstatementsusuallytake60to90daystobecompletedandreleased.
Apopulationhasameanof20,000andastandarddeviationof1,000.Samplesofsizen=2,500aretakenfromthispopulation.Whatis
thestandarderrorofthesamplemean?
A) 0.04.
B) 20.00.
C) 400.00.
Explanation
Thestandarderrorofthesamplemeanisestimatedbydividingthestandarddeviationofthesamplebythesquarerootofthesample
size:s x=s/n1/2=1000/(2500)1/2=1000/50=20.
FromtheentirepopulationofMcDonald'sfranchises,ananalystconstructsasampleofthemonthlysalesvolumefor20
randomlyselectedfranchises.Shecalculatesthemeansalesvolumeforthose20franchisestobe$400,000.Thesampling
distributionofthemeanistheprobabilitydistributionofthe:
A) meanmonthlysalesvolumeestimatesfromallpossiblesamples.
B) meanmonthlysalesvolumeestimatesfromallpossiblesamplesof20
observations.
C) monthlysalesvolumeforallMcDonald'sfranchises.
Explanation
Thesamplingdistributionofasamplestatisticisaprobabilitydistributionmadeupofallpossiblesamplestatisticscomputed
fromsamplesofthesamesizerandomlydrawnfromthesamepopulation,alongwiththeirassociatedprobabilities.
MelissaCyprus,CFA,isconductingananalysisofinventorymanagementpracticesintheretailindustry.Sheassumesthe
populationcrosssectionalstandarddeviationofinventoryturnoverratiosis20.Howlargearandomsampleshouldshegather
inordertoensureastandarderrorofthesamplemeanof4?
A) 80.
B) 25.
C) 20.
Explanation
Giventhepopulationstandarddeviationandthestandarderrorofthesamplemean,youcansolveforthesamplesize.
Becausethestandarderrorofthesamplemeanequalsthestandarddeviationofthepopulationdividedbythesquarerootof
thesamplesize,4=20/n1/2,son1/2=5,son=25.
df 0.100 0.050 0.025 0.01 0.005 0.0005
df 0.20 0.10 0.05 0.02 0.01 0.001
24 1.318 1.711 2.064 2.492 2.797 3.745

25 1.316 1.708 2.060 2.485 2.787 3.725
26 1.315 1.706 2.056 2.479 2.779 3.707
27 1.314 1.703 2.052 2.473 2.771 3.690
BooksFast,Inc.,pridesitselfonshippingcustomerordersquickly.BooksFastsampled27ofitscustomerswithina200mile
radiusandfoundameandeliverytimeof76hours,withasamplestandarddeviationof6hours.Basedonthissampleand
assuminganormaldistributionofdeliverytimes,whatistheconfidenceintervalforthemeandeliverytimeat5%significance?
A) 68.50to83.50hours.
B) 65.75to86.25hours.
C) 73.63to78.37hours.
Explanation
Theconfidenceintervalisequalto76+or(2.056)(6/27)=73.63to78.37hours.
Becausethesamplesizeissmall,weusethetdistributionwith(271)degreesoffreedom.
Thetablebelowisforfivesamplesdrawnfromfiveseparatepopulations.Thefarleftcolumnsgiveinformationonthe
populationdistribution,populationvariance,andsamplesize.Therighthandcolumnsgivethreechoicesfortheappropriate
tests:Z=zstatistic,andt=tstatistic."None"meansthatateststatisticisnotavailable.
SamplingFrom TestStatisticChoices
Distribution Variance n One Two Three
Normal 5.60 75 Z Z Z
Nonnormal n/a 45 Z t t
Normal n/a 1000 Z t t
Nonnormal 14.3 15 t none t
Normal 0.056 10 Z Z t
Whichsetofteststatisticchoices(One,Two,orThree)matchesthecorrectteststatistictothesampleforallfivesamples?
A) Two.
B) Three.
C) One.
Explanation
Fortheexam:COMMITTHEFOLLOWINGTABLETOMEMORY!
Whenyouaresamplingfroma: andthesamplesizeissmall,usea: andthesamplesizeislarge,usea:
Normaldistributionwithaknownvariance Zstatistic Zstatistic
Normaldistributionwithanunknownvariance tstatistic tstatistic
Nonnormaldistributionwithaknownvariance notavailable Zstatistic
Nonnormaldistributionwithanunknownvariance notavailable tstatistic
Whichofthefollowingstatementsaboutconfidenceintervalsisleastaccurate?Aconfidenceinterval:
A) hasasignificancelevelthatisequaltooneminusthedegreeofconfidence.
B) isconstructedbyaddingandsubtractingagivenamountfromapointestimate.
C) expandsastheprobabilitythatapointestimatefallswithintheintervaldecreases.
Explanation
Aconfidenceintervalcontractsastheprobabilitythatapointestimatefallswithintheintervaldecreases.
Thecentrallimittheoremstatesthat,foranydistribution,asngetslarger,thesamplingdistribution:
A) approachesthemean.
B) approachesanormaldistribution.
C) becomeslarger.
Explanation
Asngetslarger,thevarianceofthedistributionofsamplemeansisreduced,andthedistributionofsamplemeans
approximatesanormaldistribution.
Asimplerandomsampleisasampleconstructedsothat:
A) thesamplesizeisrandom.
B) eachelementofthepopulationisalsoanelementofthesample.
C) eachelementofthepopulationhasthesameprobabilityofbeingselectedaspartof
thesample.
Explanation
Simplerandomsamplingisamethodofselectingasampleinsuchawaythateachitemorpersoninthepopulationbeing
studiedhasthesame(nonzero)likelihoodofbeingincludedinthesample.
Ananalystwantstogenerateasimplerandomsampleof500stocksfromall10,000stockstradedontheNewYorkStock
Exchange,theAmericanStockExchange,andNASDAQ.Whichofthefollowingmethodsisleastlikelytogeneratearandom
sample?
A) Assigningeachstockauniquenumberandgeneratinganumberusingarandom
numbergenerator.Thenselectingthestockwiththatnumberforthesampleand
repeatinguntilthereare500stocksinthesample.
B) Usingthe500stocksintheS&P500.
C) Listingallthestockstradedonallthreeexchangesinalphabeticalorderandselecting
every20thstock.
Explanation
TheS&P500isnotarandomsampleofallstockstradedintheU.S.becauseitrepresentsthe500largeststocks.Theother
twochoicesarelegitimatemethodsofselectingasimplerandomsample.
A95%confidenceintervalforthemeannumberofmonthlycustomervisitstoagrocerystoreis28,000to32,000customers.
Whichofthefollowingisanappropriateinterpretationofthisconfidenceinterval?
A) Thereisa95%chancethatnextmonththegrocerystorewillhavebetween28,000
and32,000customervisits.
B) Weare95%confidentthatifasampleofmonthlycustomervisitsistaken,the
samplemeanwillfallbetween28,000and32,000.
C) Ifwerepeatedlysamplethepopulationandconstruct95%confidenceintervals,95%
oftheresultingconfidenceintervalswillincludethepopulationmean.
Explanation
Therearetwointerpretationsofthisconfidenceinterval:aprobabilisticandapracticalinterpretation.Probabilistic
interpretation:Wecaninterpretthisconfidenceintervaltomeanthatifwesamplethepopulationofcustomers100times,we
canexpectthat95(95%)oftheresulting100confidenceintervalswillincludethepopulationmean.Practicalinterpretation:We
canalsointerpretthisconfidenceintervalbysayingthatweare95%confidentthatthepopulationmeannumberofmonthly
customervisitsisbetween28,000and32,000.
WhichofthefollowingisNOTapredictionofthecentrallimittheorem?
A) Thestandarderrorofthesamplemeanwillincreaseasthesamplesizeincreases.
B) Themeanofthesamplingdistributionofthesamplemeanswillbeequaltothe
populationmean.
C) Thevarianceofthesamplingdistributionofsamplemeanswillapproachthe
populationvariancedividedbythesamplesize.
Explanation
Thestandarderrorofthesamplemeanisequaltothesamplestandarddeviationdividedbythesquarerootofthesample
size.Asthesamplesizeincreases,thisratiodecreases.Theothertwochoicesarepredictionsofthecentrallimittheorem.
Asampleoffivenumbersdrawnfromapopulationis(5,2,4,5,4).Whichofthefollowingstatementsconcerningthissample
ismostaccurate?
A) ThemeanofthesampleisX/(n1)=5.
B) Thesamplingerrorofthesampleisequaltothestandarderrorofthesample.
C) Thevarianceofthesampleis:(x1meanofthesample)2/(n1)=1.5.
Explanation
ThemeanofthesampleisX/n=20/5=4.Thesamplingerrorofthesampleisthedifferencebetweenasamplestatistic
anditscorrespondingpopulationparameter.

06 Sampling and Estimation

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06 Sampling and Estimation

Încărcat de

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SamplingandEstimation TestID:7658769

df 0.20 0.10 0.05 0.02 0.01 0.001

Normaldistributionwithaknownvariance zstatistic zstatistic

B) givesthevarianceofthedistributionofsamplemeansas 2/n,where 2isthe

df 0.100 0.050 0.025 0.01 0.005 0.0005

24 1.318 1.711 2.064 2.492 2.797 3.745

Distribution Variance n One Two Three

Normal n/a 1000 Z t t

Nonnormal 14.3 15 t none t

Whenyouaresamplingfroma: andthesamplesizeissmall,usea: andthesamplesizeislarge,usea:

Normaldistributionwithaknownvariance Zstatistic Zstatistic

Normaldistributionwithanunknownvariance tstatistic tstatistic

Nonnormaldistributionwithaknownvariance notavailable Zstatistic

Nonnormaldistributionwithanunknownvariance notavailable tstatistic

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