Question

In a survey of 200 publicly-traded companies, the average price-earnings ratio was 18.5 with a standard deviation of 8.2. When testing the hypothesis (at the 5% level of significance) that the average price-earnings ratio has increased from the past value of 16.8, the null and alternative hypotheses would be:________

Answer 1

Null Hypothesis: H0:μ ≤ 16.8

Alternative Hypothesis: Ha: μ > 16.8

Explanation:

We are told that affer testing the hypothesis (at the 5% level of significance), that the average price-earnings ratio increased from the past value of 16.8.

It means that the past value was not more than 16.8.

This follows that the null hypothesis is given as;

H0:μ ≤ 16.8

And since it has been discovered that the ratio increased from the past value of 16.8, the alternative hypothesis is;

Ha: μ > 16.8