A research analyst is examining a stock for possible inclusion in his client's portfolio. Over a 10-year period, the sample mean and the sample standard deviation of annual returns on the stock were 20% and 15%, respectively. The client wants to know if the risk, as measured by the standard deviation, differs from 18%.
a. Construct the 95% confidence intervals for the population variance and the population standard deviation.
b. What assumption did you make in constructing the confidence interval?
c. Based on the results in part (a), does the risk differ from 18%?