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# Hypothesis Testing: Investment Downturns

The Asian economy faltered during the last few months of 1997. Investors anticipated that the downturn in the Asian economy would have a negative effect on the earnings of companies in the United States during the fourth quarter of 1997. The following sample data show the earnings per share for the fourth quarter of 1996 and the fourth quarter of 1997 (The Wall Street Journal, January 28, 1998).

Questions:

a. Formulate H0 and H1 such that the rejection of H0 leads to the conclusion that the mean earnings per share for the fourth quarter of 1997 are less than for the fourth quarter of 1996.

b. Use the data in the following table to conduct the hypothesis test. At alpha = 0.10, what is your conclusion?

See the attached file for the required data.

#### Solution Preview

Questions:

a. Formulate H0 and H1 such that rejection of H0 leads to the conclusion that the mean earnings per share for the fourth quarter of 1997 are less than for the fourth quarter of 1996.

Null hypothesis (H0) = mean earnings for 1997 are greater than or equal to the mean earnings for 1996.

Alternative hypothesis (H1) = mean earnings for 1997 are less than the mean earnings for 1996.

Notice that this is a one-sided test because ...

#### Solution Summary

This solution is comprised of a clear and easy to follow response, which both thoroughly discusses how to formulate the initial hypotheses and make a conclusion at the alpha value of 0.10. In order to view the data for this solution, a Word document needs to be opened.

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