Hypothesis Testing of Mean: Year-end bonuses

Wall Street securities firms paid out record year-end bonuses of $125,500 per employee for 2005 (Fortune, February 6, 2006). Suppose we would like to take a sample of employees at the Jones & Ryan securities firm to see whether the mean year-end bonus is different from the reported mean of $125,500 for the population.

A. State the null and alternative hypotheses you would use to test whether the year-end bonus is different from the reported mean of $125,500 for the population.

B. Suppose the sample of 40 Jones & Ryan employees showed a sample mean year-end bonus of $118,000. Assume a population standard deviation of $30,000 and compute the p-value

C. With .05 as the level of significance, what is your conclusion?

D. Repeat the preceding hypothesis test using the critical value approach.

Solution Summary

The solution provides step by step method for the calculation of testing of hypothesis. Formula for the calculation and Interpretations of the results are also included. Interactive excel sheet is included. The user can edit the inputs and obtain the complete results for a new set of data.