Course: Artificial Intelligence for Investments

Week 3 Assignment Solution

Q1: Consider the situation of a manufacturer of soft drink products. The label on a soft drink

bottle states that it contains 67.6 fluid ounces. You, as a customer, want to check the

manufacturer's claim. What would be the null and alternate hypothesis in this case?

i. H0: 𝜇 = 67.6 𝑜𝑢𝑛𝑐𝑒𝑠 and Ha: 𝜇 ≠ 67.6 𝑜𝑢𝑛𝑐𝑒𝑠

ii. H0: 𝝁 ≥ 𝟔𝟕. 𝟔 𝒐𝒖𝒏𝒄𝒆𝒔 and Ha: 𝝁 < 𝟔𝟕. 𝟔 𝒐𝒖𝒏𝒄𝒆𝒔

iii. H0: 𝜇 < 67.6 𝑜𝑢𝑛𝑐𝑒𝑠 and Ha: 𝜇 ≥ 67.6 𝑜𝑢𝑛𝑐𝑒𝑠

iv. H0: 𝜇 ≠ 67.6 𝑜𝑢𝑛𝑐𝑒𝑠 and Ha: 𝜇 = 67.6 𝑜𝑢𝑛𝑐𝑒𝑠

Explanation: The label on a soft drink bottle states that it contains 67.6 fluid ounces. Thus, in

a hypothesis test about the population mean fluid weight per bottle, we would begin with the

assumption that the label is correct and state the null hypothesis as 𝜇 ≥ 67.6 𝑜𝑢𝑛𝑐𝑒𝑠. The

challenge to this assumption would imply that the label is incorrect and the bottles are being

underfilled. This challenge would be stated as the alternative hypothesis as 𝜇 < 67.6 𝑜𝑢𝑛𝑐𝑒𝑠.

Thus, the null and alternative hypotheses are: H0: 𝜇 ≥ 67.6 𝑜𝑢𝑛𝑐𝑒𝑠 and Ha: 𝜇<

67.6 𝑜𝑢𝑛𝑐𝑒𝑠.

Q2: Which of the following correctly identifies the Type 1 error?

i. Accepting H0 when H0 is true

ii. Accepting H0 when Ha is true

iii. Rejecting H0 when H0 is true

iv. Rejecting H0 when Ha is true

Explanation: If H0 is accepted and H0 is true, this conclusion is correct. Similarly, if H0 is

rejected when Ha is true, this conclusion is correct. However, if we reject H0 when H0 is true,
we make a Type I error. And if H0 is accepted when Ha is true, we make a Type II error; that

is, we accept H0 when it is false.

Questions 3-4: Given the below information, compute Questions 3-4.

Each week, Lloyd’s department store selects a simple random sample of 100 customers to learn

about the amount spent per shopping trip. Based on the historical data, Lloyd’s assumes a

known value of 𝜎 = $20 for the population standard deviation. The historical data also indicate

that the population follows a normal distribution. During the most recent week, Lloyd’s

surveyed 100 customers (n = 100) and obtained a sample mean of 𝑥̅ = $82. Assume z= ± 1.645

for a 90% confidence interval and z= ± 2.576 for a 99% confidence interval.

Q3: Given the above information, construct a 90% confidence interval for the population mean.

i. (68.56, 85.51)

ii. (69.20, 85.70)

iii. (78.71, 85.29)

iv. (77.24, 89.86)

Explanation: The 90% confidence interval for population mean can be estimated using:

population mean = sample mean ± margin of error, i.e., 𝜇 = 𝑥̅ ± 𝑍 ∗ 𝑆𝐸

𝜎 20
Here, SE is the standard error of the sample mean, which is equal to 𝜎𝑥̅ = = =2
√𝑛 √100

𝜇 = 𝑥̅ ± 𝑍 ∗ 𝑆𝐸 = 82 ± 1.645 ∗ 2 = 78.71 𝑡𝑜 85.29

i. (76.85, 87.15)

ii. (78.56, 86.78)

iii. (77.89, 86.12)

iv. (81.23, 83.45)

Explanation: The 99% confidence interval for population mean can be estimated using:

population mean = sample mean ± margin of error, i.e., 𝜇 = 𝑥̅ ± 𝑍 ∗ 𝑆𝐸

𝜎 20
Here, SE is the standard error of the sample mean, which is equal to 𝜎𝑥̅ = = =2
√𝑛 √100

𝜇 = 𝑥̅ ± 𝑍 ∗ 𝑆𝐸 = 82 ± 2.576 ∗ 2 = 76.85 𝑡𝑜 87.15

Questions 5 to 8

Consider the following hypothesis test:

𝐻0 : 𝜇 = 50

𝐻𝑎 : 𝜇 ≠ 50

A sample of 60 is used, and the population standard deviation is 8. Using the above information,

answer the following questions.

Q5: What type of hypothesis test is being conducted in this scenario?

i. One-tailed (right-tailed)

ii. One-tailed (left-tailed)

iii. Two-tailed

iv. None of the above

Explanation: The alternative hypothesis 𝜇 ≠ 50 suggests testing for inequality in both

directions.
 Q6: What is the correct interval of standard error (SE) of the sample mean, given that the

population standard deviation is 8 and the sample size is 60?

i. 0.5-0.8

ii. 1.2-1.5

iii. 1-1.2

iv. 2-2.5

𝜎 8
Explanation: SE = = √60 = 1.033
√𝑛

Q7: For a sample mean (𝑥̅ ) of 52.5, what is the correct interval of z-score if the population

mean is 50, the sample size is 60, and the population standard deviation is 8?

i. 2.5-3

ii. 1.5-2

iii. 1-1.5

iv. 2-2.5

Explanation: Using the Z-score formula:

𝑥̅ −𝜇 52.5−50
𝑧= = = 2.5/1.033 = 2.42
𝑆𝐸 8/√60

Q8: What is the conclusion about the null hypothesis if the sample mean (𝑥̅ ) = 51.8, at 𝛼 = 0.05

significance level? Assume z = 1.96 for a 95% confidence interval.

i. Reject 𝐻0

ii. Accept 𝐻0

iii. Fail to reject 𝑯𝟎

iv. None of the above

51.8−50
Explanation: For 𝑥̅ = 51.8, the Z score is: 𝑍 = = 1.74
8/√60
Since 1.74 lies within the range of −1.96 to 1. 96, there is insufficient evidence to reject the

null hypothesis. This means the sample mean is not significantly different from the

hypothesized mean.

Questions 9-10: Given the below information, answer Questions 9-10.

A national survey of 900 women golfers was conducted to learn how women golfers view their

treatment at golf courses in the United States. The survey found that 396 of the women golfers

were satisfied with the availability of tee times. Thus, the point estimate of the proportion of

the population of women golfers who are satisfied with the availability of tee times is 396/900

= 0.44.

Q9: Given the above information, construct a 95% confidence interval for the population

proportion.

a) (40.76%, 47.24%)

b) (50.23%, 60.10%)

c) (11.01%, 16.05%)

d) None of the above

Explanation: 95% confidence interval: Proportion ± Margin of Error (MOE) = 𝑝 ± 𝑍 ∗

𝑝(1−𝑝)
√ = 0.44 ± 1.96 ∗ 0.0165 = 0.44 ± 0.0324 = 40.76% 𝑡𝑜 47.24%
𝑛

Q10: Using the above information, assume that the company is interested in conducting a new

survey to estimate the current proportion of the population of women golfers who are satisfied

with the availability of tee times. How large should the sample be if the survey director wants

to estimate the population proportion with a margin of error of .025 at 95% confidence?

a) 1356
 b) 1324

c) 1515

d) 1490

Explanation: With MOE = .025 and z = 1.96, we need a planning value 𝑝 to calculate the

sample size. Using the previous survey result of p = .44 as the planning value 𝑝, sample size

(𝑧 2 )𝑝(1−𝑝) (1.96)2 (0.44)(1−0.44)