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Some financial analysts use past data on stock and government security returns to estimate a historical risk premium. Now, assume that the arithmetic annual stock returns are 8% and that the arithmetic average of annual treasury bond returns is 4% over a hundred-year period. Also, assume that the geometric average of annual stock returns is 9% and that the geometric average of annual treasury bond returns is 3% over a hundred-year period. If the annualized standard deviation in stock returns over this period was 25%, which of the following best represents the historical risk premium, which you plan to use in your long-term hurdle rate? Group of answer choices: None of the others The historical risk premium is 4%, standard error is 2% The historical risk premium is 4%, standard error is 2.5% The historical risk premium is 6%, standard error is 2% The historical risk premium is 6%, standard error is 2.5%

          Some financial analysts use past data on stock and government security returns to estimate a historical risk premium. Now, assume that the arithmetic annual stock returns are 8% and that the arithmetic average of annual treasury bond returns is 4% over a hundred-year period. Also, assume that the geometric average of annual stock returns is 9% and that the geometric average of annual treasury bond returns is 3% over a hundred-year period. If the annualized standard deviation in stock returns over this period was 25%, which of the following best represents the historical risk premium, which you plan to use in your long-term hurdle rate?

Group of answer choices:
None of the others
The historical risk premium is 4%, standard error is 2%
The historical risk premium is 4%, standard error is 2.5%
The historical risk premium is 6%, standard error is 2%
The historical risk premium is 6%, standard error is 2.5%

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Added by Crystal G.

Horngren’s Cost Accounting

Srikant M. Datar, Madhav V. Rajan 16th Edition

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Solved by Expert David Nguyen

09/13/2022

Step 1

The historical risk premium is calculated by subtracting the average treasury bond return from the average stock return. Historical risk premium = Arithmetic average stock return - Arithmetic average treasury bond return = 8% - 4% Show more…

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Some financial analysts use past data on stock and government security returns to estimate a historical risk premium. Now, assume that the arithmetic annual stock returns are 8% and that the arithmetic average of annual treasury bond returns is 4% over a hundred-year period. Also, assume that the geometric average of annual stock returns is 9% and that the geometric average of annual treasury bond returns is 3% over a hundred-year period. If the annualized standard deviation in stock returns over this period was 25%, which of the following best represents the historical risk premium, which you plan to use in your long-term hurdle rate? Group of answer choices: None of the others The historical risk premium is 4%, standard error is 2% The historical risk premium is 4%, standard error is 2.5% The historical risk premium is 6%, standard error is 2% The historical risk premium is 6%, standard error is 2.5%

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Transcript

00:01 Hi, i'm david and i'm here to help you answer your question.

00:03 In the question here, we are going to discuss about the hypothesis testing.

00:07 Here we'll test the conclusion that the fidelity fund has the larger population variance than the american century fund.

00:16 We defined the fidelity fund will be the population 1.

00:21 It means that we want to test the known hypothesis that the sigma 1 square equal to the sigma 2 square.

00:28 And versus the alternative hypothesis that the sigma 1 square it will be larger than the sigma 2 square notice that this is the right -tale test and here we're given the n1 equal to the n2 and both equal to the 60 and we have the s1 this 1 this 1 this will be the standard division s 1 equal to the 15 % and the s2 equal to the 19 and then this will be the answer for the first part here.

01:04 And the next one, we need to find the value of the test statistics.

01:07 From this information, we have the test statistics denoted by the f.

01:12 The formula will be the s1.

01:17 It will divided by the s2.

01:20 And we will have, let me see it.

01:27 So this one will be the 19 here.

01:29 Be careful this one will be.

01:31 S1 will be for the fidelity, it will be equal to the 1, will be 19, and this one will be equal to the 15.

01:41 And then this one will be the s1 square over s2 square, and it will get equal to the 19 square over the 15 square...

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