Question 1.

Below are the quarterly returns on investment (in £000s) of two different investment
projects that had the same initial outlay. There is a sample of 16 quarters of returns and
your manager has asked you to investigate the relative performance of each project. She
suspects that ‘Investment B’ outperforms ‘Investment A’ and she would like you to test
this hypothesis. Perform an appropriate statistical test that incorporates your
manager’s hypothesis.

Hint: in this question you will need to calculate the mean and standard deviation of each
investment, assume that both returns come from independent samples, are both normally
distributed and that the (true but unknown) variances are the same.

Quarte Investme Investme

r nt A nt B
2012Q1 78 95
2012Q2 83 93
2012Q3 75 84
2012Q4 77 93
2013Q1 73 90
2013Q2 75 84
2013Q3 85 88
2013Q4 81 91
2014Q1 86 93
2014Q2 79 87
2014Q3 79 75
2014Q4 75 86
2015Q1 85 77
2015Q2 72 77
2015Q3 75 90
2015Q4 81 98
mean 78.687 87.562
Stdev 4.453 6.762
*I used the excel function AVERAGE to calculate the mean and STDEV for standard
deviation or we can calculate it manually:

First work out the mean x , it is the sum divided by the count.

Inv 1 = 78+83+75+77+73+75+85+81+86+79+79+75+85+72+75+81=1259/16=78.687

Inv2 = 95+93+84+93+90+84+88+91+93+87+75+86+77+77+90+98=1401/16=87.562

Then calculate differences by taking each number, subtract the mean and square the result.
Sum the differences and square it to get variance s2 :
Sum squares SS = Inv 1 297.4375 Inv 2 = 685.9375

Variance: Inv 1 = 19.829 Inv 2 = 45.729

-Standard deviation s : is the average amount of variability in the data set. It tells the average,
how far each result lies from the mean. To calculate take the square root of the variance:

Standard deviation Formula :

Inv 1 = 4.453 Inv 2 = 6.762

 For mean of Investment A and B If the mean result for Investment A is less than the
Investment B, it can be interpreted that Investment B outperformed Investment A.

We can test the hypothesis using Two Sample T-Test

Pooled standard deviation formula:

Where:
and are the standard deviations

Since is needed prior to calculating the t-statistic, it should be calculated first.

T-Statistic
 Degrees of Freedom

Critical Value for

Null Hypothesis:

There is no significant difference in the returns between Investment A and Investment

B.

Alternative Hypothesis:

There is a significant difference in the returns between Investment A and Investment

B.

Our test statistic, -4.384, is less than the t-critical; therefore, we reject the null
hypothesis. With a significance level of 5%, we reject the null hypothesis and
conclude that there is significant difference between the returns of Investment A and
Investment B, and that Investment B outperformed Investment A.

Question 1.b

For question 1, prepare a short report of the results and discuss the following:

 Is hypothesis testing important? Explain in detail.

A hypothesis is a theory or proposition for the possibility of occurrence of an observed
phenomenon. In statistics, hypothesis testing is important because it tackles about which
possibilities or theories are to be proven as a fact. It quantifies the probability of the null
hypothesis being unusual and not true or prove the efficacy of the alternative hypothesis.
Statistical hypothesis testing is the one which confirms if the experimental results contain
enough information needed. It has two types;

 the null hypothesis which states that nothing happened

 the alternative hypothesis which proves that your claim about your theory is
correct.

It is important because it is the one which decides if your research was subjected for a
significant change just like how you’ve expected it or if none or unlikely thing have occurred
in the data you have gathered. Additionally, hypothesis testing determines which population
is best supported by the sample data. When you are able to get the sample means, it shows
that it somehow has huge difference between the samples. This is what you call sampling
error; it is the distinction between a sample and a population. Through hypothesis testing you
are more likely to get the nearly accurate possibility of what data you are trying to find,
which is in this case, the sample mean. Now, the main goal upon getting the mean is to look
if it is probably different to the null hypothesis or more closely related to the alternative
hypothesis.

 Explain the process in order to get the results, the key assumptions in this
process

1. Assumptions
Both returns come from independent samples, are both normally distributed and that
the (true but unknown) variances are the same.
2. Specify the Null and Alternative Hypothesis
Null Hypothesis (Ho): There is no significant difference in the returns between
Investment A and Investment B.
Alternative Hypothesis (Ha): There is a significant difference in the returns between
Investment A and Investment B.
3. Calculate the t-statistic
The t-test is used to compare two means (averages) in order to find out whether they
are different, and if so, how significant the difference is. There are 3 different types of
t-tests, each of which is calculated using a different t-test equation. In this case, two
sample t-test is used. The Two Sample T-Test helps to decide whether the means of
two separate groups of data significantly differ from one another.

4. Set Significance Level

 Alpha probability of rejecting the null hypothesis when its true. In this case alpha of
0.05 means a 5% risk of concluding that a difference exists when there is no actual
difference.
5. Calculate the Degrees of Freedom
The degrees of freedom is the number of independent pieces of information that were
taken into account.

6. Determine the critical value

The critical value represents the threshold at which the difference between the two
values should be considered statistically significant. The critical value can be found in
the t-distribution table, using the degrees of freedom which we calculated.

7. Compare the t-statistic value to critical value

Do the data provide sufficient evidence to conclude that Investment B outperformed
Investment A?
The alternative (Ha) is left-tailed; which is 0.05, with 16+16-2=30 degrees of
freedom. The critical value is -1.697. The rejection region is t -1.697.

8. Present the result using graph.

This is a t-distribution graph for left-tailed hypothesis. The shaded part in blue is the rejection
region. It is important to know that its curve is asymptotic with respect to the x-axis so
imagine that blue extends to the negative infinity.

Question 2

A small tourist resort has a weekend traffic problem and is considering whether or not
to provide emergency services to help mitigate the congestion that results from an
accident or breakdown. Past records show that the probability of a breakdown or an
accident on any given day of a four-day weekend is 0.25. The cost to the community
caused by congestion from an accident or breakdown is as follows:
a weekend with 1 accident day costs £20,000;
a weekend with 2 accident days costs £30,000;
a weekend with 3 accident days costs £60,000;
a weekend with 4 accident days costs £125,000.
As part of its contingency planning, the resort needs to know:

(a) The probability that a weekend will have no accidents

p= 0.25 probability that an accident may occur
q= 0.75 probability that no accident will occur

we are looking for the probability that no accident will occur in the 4 consecutive days,
we are looking for P(0).

(b) The probability that a weekend will have at least two accidents

we are looking for the probability that at least 2 accidents will occur in the 4 consecutive
days, we can get it by getting the probability that no accidents or 1 accident will occur, then
subtract it from 1. (We subtract it from 1 because P(0 or 1) is the opposite of P(x ≥ 2), so
their difference is equivalent to P(x ≥ 2).)

We know that p(0)= , we need p(1).

So,

(c) The expected cost that the community will have to bear for an average weekend
period
To get the mean cost of the community, we can get it by getting the mean based on the
probability distribution and for 2,3 and 4 calculating just like the method I used above.

Get expected cost using the formula:

Instead of using the number of accidents as X, I will use corresponding costs.

(d) Whether or not to accept a tender from a private firm for emergency services of
£20,000 for each weekend during the season.

By looking at the average cost per week based on the data that they currently have, the cost of
getting an emergency services of £20,000 per week is greater than what the average cost of
expense they incur which is only £18,066.41. So, it can be concluded that they not need to
accept a tender from a private firm because they currently have cheaper expense compare to
what the private firm offers based on their past data.

Question 3
Church membership and attendance is declining in established churches in the UK.
Figures from the recent census shows the proportion of people calling themselves
Christian fell from 72% in 2001 to 59% in 2011. In percentage terms, the numbers of
Christians fell by 12.4% (Office for National Statistics, 2012). More recently, published
figures from the Church of England 2015 attendance statistics show that just under 1
million people attend services each week. According to the results of a recent survey, an
average of 960,000 people attend church services each week (85% adults, 15% children
under 16). Overall, figures represent a decline in attendance of 11% over the past
decade with an average decrease of just over 1% a year (Church of England Research and
Statistics, 2016).

The pastor of a local parish wants to investigate the reasons behind the decline in
church attendance. He also wants to find out what measures could be put in place in
order to retain members and attract new ones. He has decided to commission a market
research study.

a) Which qualitative method(s) should be used and why? Discuss the techniques
you would choose and explain their advantages and potential drawbacks in
detail.

Qualitative research is a market research method that focuses on obtaining data through an
open-ended and conversational communication. It focuses on the why and how factors that
affects the decisions of the target market. For this type of case, the best, qualitative method to
be used is the focus groups. It is the way of interviewing about eight to five participants and
spending time to talk to them regarding the problem. I think that this is way faster than one-
on-one interviews. This is because the pastors can freely interact with them and do not
require to take up too much time asking about the related questions that made them unable to
attend to church. Aside from that, it (the interview) can be taken online through group chats
or group meetings through videoconferences. But then, it can possibly make people shy or
intimidated by others and keep themselves silent throughout the meeting.

First technique is by setting up meetings in where they will openly interact with each other
once in a week. However, the disadvantage of it is that, maybe those who cannot attend
church are unable to attend the seminars and meetings too.

Second, they can send cards, letters, and directly chat with the families about their reasons
and approach them if they may have problem or such. But then, most families would likely
decline the church calls especially if they were busy.

Third, they can have held a celebration or a program which can make people attend and then
lecture them about the essence of going to churches. Although, it is costly and the church,
must not lure out people by money or foods to go to church- they must do it willingly.

b) What possible questions could be asked?

 What caused you to not attend to church anymore?
 Can you still remember our past lectures about the Word of God?
 Do you want to share something?
 Do you happen to have a problem?
 Are you doing fine? Do you want to discuss it with us?
 Are you sick?
 Is your family doing fine?
 What about your studies? Are your grades good?
 What thoughts do you have in mind as of now?
 What are your plans for the future?