Final answer:
The proportion of 5-star rated stocks is found by dividing the number of 5-star stocks by the total (40). The average rating is the sum of all ratings divided by 40. The estimated proportion based on the average relates to the maximum rating, and the proportion of stocks rated above average is based on the average rating.
Step-by-step explanation:
For the data set containing 40 stocks from Morningstar's publication, you are asked to develop a point estimate of the proportion of stocks that receive Morningstar’s highest rating of 5 stars.
a. To calculate the sample proportion of 5-star rated stocks, you would take the number of 5-star stocks and divide it by the total number of stocks in the sample (40).
b. To find the average rating of the sampled stocks, add up all the ratings and divide by the number of stocks (40).
c. To estimate the proportion based on the average rating, consider how the average relates to the rating scale. If 5 is the highest rating, then an average rating can be converted into a proportion of the maximum rating. For example, if the average rating is 4, then it can be said that on average, the stocks achieve 4/5 (or 80%) of the maximum rating.
d. To determine the proportion of stocks rated above average, count the number of stocks with a rating greater than the average and divide by the total number of stocks.