HKUST/ISOM2500/Spring2019

ISOM2500 Spring 2019

Assignment 3

1. A battery company claims that on average their batteries last 60 hours

a. A sample of size 15 is obtained resulting in a sample mean of 52 hours
with a sample standard deviation of 22 hours. Assume that the battery
lifetimes are normally distributed with unknown mean and variance
100. Test to see whether the company’s batteries really last that long
with 5% significant level.
b. Now suppose the Normal assumption still holds but exact knowledge
of the variability is not assumed. Redo part (a).

2. A bank wonders whether omitting the annual credit card fee for customers
who charge at least $18,000 in a year would increase the amount charged on
its credit card. The bank makes this offer to a random sample of 50 of its
existing customers. It then compares how much these customers charge this
year with the amount that they charged last year. The sample mean increase is
$500 and the sample standard deviation is $800. To determine whether there is
significant evidence that the mean amount charged increases under the no-free
offer, the bank performs a statistical test with H0 : the mean increase μ =
0 vs H1 : μ > 0. The rejection region is x̅ > 200. What are the significant
level α and the p-value of this test?

3. Ten years ago 53% of American families owned stocks or stock funds. Sample
data collected by the Investment Company Institute indicate that the
percentage is now 46% (The Wall Street Journal, October 5, 2012).
a. Develop appropriate hypotheses such that rejection of 𝐻0 will support
the conclusion that a smaller proportion of American families own
stocks or stock funds in 2012 than 10 year ago.
b. Assume the Investment Company Institute sampled 300 American
families to estimate that the percent owning stocks or stock funds was
46% in 2012. What is the p-value for your hypothesis test? Interpret
the p-value of the test.
c. At 𝛼 = 0.01, what is your conclusion? (Use critical value approach
for this part)

4. The American Association of Individual Investors conducts a weekly survey

of its members to measure the percent who are bullish, bearish, and neutral on
the stock market for the next six months. For the week ending November 7,
2012, the survey results showed 38.5% bullish, 21.6% neutral, and 39.9%
bearish (AAII website, November 12, 2012). Assume these results are based
on a sample of 300 AAII members.
a. Over the long term, the proportion of bullish AAII members is 0.39.
Conduct a hypothesis test at the 5% level of significance to see if the
current sample results show that bullish sentiment differs from its
long-term average of 0.39. What are your findings? (use critical value
approach)

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 HKUST/ISOM2500/Spring2019

b. Over the long term, the proportion of bearish AAII members is 0.30.
Conduct a hypothesis test at the 1% level of significance to see if the
current sample results show that bearish sentiment is above its long-
term average of 0.30. What are your findings? (use p-value approach)
c. Would you feel comfortable extending these results to all investors?
Why or why not?

5. A lending institution supplied the following data on loan approvals by four

loan officers. Use 𝛼 = 0.05 and test to determine whether the loan approval
decision is independent of the loan officer reviewing the loan application.
Loan Approval
Decision
Loan Officer Approved Rejected
Miller 24 16
McMahon 17 13
Games 35 15
Runk 11 9