A portfolio manager was analyzing the price-earnings ratio for this
year’s performance. His boss said thatthe average price-earnings ratio
was 20 for the many stocks that his firm had traded, but the
portfoliomanager felt that the figure was too high. He randomly selected
a sample of 50 price-earnings ratios and
found a mean of 18.17 and a standard deviation of 4.60. Assume that the population is normally
and test at the 0.01 level of significance. Which of the following is
the correct decision rule forthe manager to use in this situation?
A. Because 2.81 is greater than 2.33, reject H0. At the 0.01 level, the
sample data suggest that the average price-earnings ratiofor the stocks
is less than 20.
B. If t > 2.68 or if t
C. Because –2.81 falls
in the rejection region, reject H0. At the 0.01 level, the sample data
suggest that the average priceearningsratio for the stocks is less than
D. If z > 2.33, reject H0.