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The theory of finance allows for the computation of “excess” returns, either above or below the current stock market average. An analyst wants to determine whether stocks in a certain industry group earn either above or below the market average at a certain time period. The null hypothesis is that there are no excess returns, on the average, in the industry in question. “No average excess returns” means that the population excess return for the industry is zero. A random sample of 24 stocks in the industry reveals a sample average excess return of 0.12 and sample standard deviation of 0.2. State the null and alternative hypotheses, and carry out the test at the α = 0.05 level of significance.

The theory of finance allows for the computation of “excess” returns, either above or below the current stock market average. An analyst wants to determine whether stocks in a certain industry group earn either above or below the market average at a certain time period. The null hypothesis is that there are no excess returns, on the average, in the industry in question. “No average excess returns” means that the population excess return for the industry is zero. A random sample of 24 stocks in the industry reveals a sample average excess return of 0.12 and sample standard deviation of 0.2. State the null and alternative hypotheses, and carry out the test at the α = 0.05 level of significance.

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