Comparing Rates of Return You want to invest some money in a domestic (only U.S. stocks)

Chapter 11, Problem 21

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Comparing Rates of Return You want to invest some money in a domestic (only U.S. stocks) mutual fund and have narrowed your choice down to value funds or growth funds. Value funds tend to invest in companies that appear to be inexpensive relative to the stock market; growth funds tend to invest in companies that are expected to grow their revenues substantially over time. To help make your decision about which of the two fund types to invest in, you decide to obtain a random sample of 3-year rates of return for 10 different value funds and 10 different growth funds. Value Funds 9.54 8.76 12.53 9.52 8.71 6.09 7.63 6.02 6.02 11.71 Growth Funds 7.57 8.37 8.63 9.02 8.36 7.95 9.33 7.53 6.93 8.37 Source: Morningstar.com (a) We want to compare two means. Because the sample sizes aresmall, the sample data must come from populations that arenormally distributed with no outliers. The normal probabilityplots for both sets of data are shown. Do the plots indicatethat it is reasonable to believe that the sample data comefrom a population that is normally distributed?(b) To judge whether the sample data have any outliers and tovisualize any differences between the two sample data sets, drawside-by-side boxplots of the data. Are there any outliers?(c) Conduct the appropriate test to determine if there is anydifference in the rate of return between value funds and growthfunds. Use the a = 0.05 level of significance.(d) Another method for evaluating funds is to consider theirrisk. One measure of risk is the standard deviation rate ofreturn. The higher the standard deviation is, the riskier thefund. Conduct the appropriate test to determine if there isany difference in the risk of each fund. Use the a = 0.05 levelof significance.(e) Based on the results from parts (c) and (d), write a reportdetailing which fund type you would recommend.