Question

Excel Spreadsheet Exercise: A financial analyst for Investments Concepts is evaluating three rules for triggering changes in variable rate mortgages. Using randomly generated market interest rates scenarios as the blocking variable, the analyst obtained the following sample data from computer simulations.

Loan Portfolio Yield
Block	A	B	C
1	11.3	12.4	10.9
2	14.2	14.3	13.7
3	14.9	15.2	14.7
4	12.2	11.3	12.5

At alpha of 0.05, how should the analyst conclude regarding the mean portfolio yield?

1. The null hypothesis should NOT be rejected. There is NO evidence that mean portfolio yields differ
2. The null hypothesis should be REJECTED. There is evidence that mean portfolio yields differ. P-value is less than 0.05
3. The null hypothesis should NOT be rejected. P-value for blocking is 0.0011
4. None of the above statements is correct

Answer 1

Solution:

We can use the excel data analysis tool to apply "Anova: Two-Factor Without Replication". The excel output is given below:

At alpha of 0.05, how should the analyst conclude regarding the mean portfolio yield?

Answer: The correct option is a. The null hypothesis should NOT be rejected. There is NO evidence that mean portfolio yields differ.

Since the p-value is greater than the significance level, we, therefore, fail to reject the null hypothesis and conclude that there is no evidence that the mean portfolio yields differ.