Question

One of the consequences of the Great Recession was a free fall of the stock market's average pricelearnings ratio, or P/E ratio (The Wall Street Journal, August 30, 2010). Generally, a high P/E ratio suggests that investors are expecting higher earnings growth in the future compared to companies with a lower P/E ratio. An analyst wants to determine if the P/E ratio of firms in the footwear industry is different from the overall average of 14.9. Theollowing table shows the P/E ratios for a sample of seven firms in the footwear industry: Firm Brown Shoe Co., Inc Collective Brands, Inc. Crocs, Inc. DSW, Inc. Nike, Inc. Skechers USA, Inc. Timberland Co. P/E Ratio 20.54 9.33 22.63 14.42 18.68 9.35 14.93 Source: bizyahoo.com, data retrieved August 23. 2010. a. Select the null and the alternative hypotheses in order to test whether the P/E ratio of firms in the footwear industry differs from the overall average of 14.9 one: μ 2 14.9; HA: μ < 14.9 O He: μ 14.9; HA: μ > 14.9 one: μ 14.9; HA: μ # 14.9 b. What assumption regarding the population is necessary? The population from which the sample is taken is distributed. c-1. Calculate the value of the test statistic. (Round Intermedlete calculetlons to at least 4 declmal places and final answer to 3 declmal places.) Test statistic

Answer 1