Price earning ratio

6. The P/E ratio (price earnings) ratio for each stock is determined by dividing the price of a share of stock by the earnings per share reported by the company for the most recent four quarters. A sample of 10 stocks taken from the Wall Street Journal (on September 29th, 2000) provided the following P/E ratios: 5, 7, 9, 12, 14, 24, 20, 15, 3, 28. a. What is the point estimate of the mean and the Standard Deviation P/E ratio for the population of all stocks listed on the New York Stock Exchange? b. At 98% confidence, what is the interval estimate of the mean P/E ratio for the population of all stocks listed on the New York Stock Exchange? c. Test (using the two tailed test) a... click for more

Find the mean and standard deviation of the return on a portfolio consisting of an equal investment in each of the two stocks

An analysis of the stock market produces the following information about the returns of two stocks. Stock 1 Stock 2 Expected Returns 16% 18% Standard Deviations 20 30 Assume that the returns are positively correlated with = 0.90. Find the mean and standard deviation of the return on a portfolio consisting of an equal investment in each of the two stocks.

Normal distribution

Profits (X ) in an industry consisting of 100 firms are normally distributed with a mean value of $1.5 million and a standard deviation of $120,000. Calculate : (a) P(X<$1.3 million) (a) P($1200,000 £ X £ $1,400,000) Suppose a random sample of 10 firms gave a mean profit of $900,000 (b) Establish a 95% confidence interval for the true mean profit in the industry. (c) Which probability distribution do you use? Why? I am interested in the solutions for a and b, but especially c, as i did not know how to interpret.

Interpretation

A company operating a chain of drug stores plans to open a new store in one of the locations. The management of the company figures that at the first location the store will show an annual profit of $20,000 if it is successful and an annual loss of $2,000 if it is not. At the second location, the store will show an annual profit of $25,000 if it is successful and an annual loss of $5,000 if it is not. If the probability of success is 3/5 in the first location and 2/5 in the second location, where should the company open the new store so as to maximize expected profit?

Confidence intervals

The inspection division of the Measures Department in a public service is interested in estimating the actual amount of soft drink that is placed in 2 -liter bottles at the local bottling plant of a large nationally known soft-drink company. The bottling plant has informed the inspection division that the standard deviation for 2-liter bottles is 0.05 liter. A random sample of 100 2-liter bottles obtained from this bottling plant indicates a sample average of 2 liters. a) Set up a 95% confidence interval estimate of the true average amount of soft drink in each bottle. b) Test the hypothesis that the true average is 2.5 liters against the hypothesis that it is different from 2.5... click for more