CASE 1: Direct and Broker-Purchased Mutual Funds
Millions of investors buy mutual funds, choosing from thousands of possibilities. Some funds
can be purchased directly from banks or other financial institutions whereas others must be
purchased through brokers, who charge a fee for this service. This raises the question, Can
investors do better by buying mutual funds directly than by purchasing mutual funds through
brokers? To help answer this question, a group of researchers randomly sampled the annual
returns from mutual funds that can be acquired directly and mutual funds that are bought
through brokers and recorded the net annual returns, which are the returns on investment
after deducting all relevant fees. These are listed next.
Can we conclude at the 5% significance level that directly purchased mutual funds outperform
mutual funds bought through brokers?
CASE 2: Comparing Salary Offers for Finance and Marketing MBA Majors
In the last few years, a number of Web-based companies that offer job-placement services have
been created. The manager of one such company wanted to investigate the job offers recent
MBAs were obtaining. In particular, she wanted to know whether finance majors were being
offered higher salaries than marketing majors. In a preliminary study, she randomly sampled 50
recently graduated MBAs, half of whom majored in finance and half in marketing. From each
graduate she obtained the highest salary offer (including benefits). These data are listed here.
Can we infer that finance majors obtain higher salary offers than do marketing majors among
MBAs.
CASE 3: Proportion of Total Assets Invested in Stocks
In the last decade, stockbrokers have drastically changed the way they do business. Internet trading has
become quite common, and online trades can cost as little $7. It is now easier and cheaper to invest in
the stock market than ever before. What are the effects of these changes? To help answer this question,
a financial analyst randomly sampled 366 American households and asked each to report the age of the
head of the household and the proportion of their financial assets that are invested in the stock market.
The age categories are
Young (less than 35)
Early middle age (35 to 49)
Late middle age (50 to 65)
Senior (more than 65)
The analyst was particularly interested in determining whether the ownership of stocks varied by age.
Do these data allow the analyst to determine that there are differences in stock ownership between the
four age groups?
CASE 4: Odometer Reading and Prices of Used Honda Accords
Car dealers across North America use the Kelley Blue Book to help them determine the value of used
cars that their customers trade in when purchasing new cars. The book, which is published monthly, lists
the trade-in values for all basic models of cars. It provides alternative values for each car model
according to its condition and optional features. The values are determined on the basis of the average
paid at recent used-car auctions, the source of supply for many used-car dealers. However, the Blue
Book does not indicate the value determined by the odometer reading, despite the fact that a critical
factor for used-car buyers is how far the car has been driven. To examine this issue, a used-car dealer
randomly selected 100 3-year-old Honda Accords that were sold at auction during the past month. Each
car was in top condition and equipped with all the features that come standard with this car. The dealer
recorded the price (in $1,000s) and the number of miles (thousands) on the odometer. The dealer wants
to find the regression line.
Also, determine the Coefficient of Correlation.
CASE 5: Understanding the causes of Criminality
Police station across the country are interested in predicting number of arrests they can expect to
process each month so that to better schedule office employees. Historically, the average number of
arrests (Y) each month is influenced by the number of officers on the police force, the population of the
city in thousands, and the percentage of unemployed people in the city. Data for these factors in 15
cities are presented below.
Monthly Average Number Number of Officers on Size of the City in Percentage
of Arrests (Y) the Force (X1) Thousands(X2) Unemployed(X3)
390.6 68 81.6 4.3
504.3 94 75.1 3.9
628.4 125 97.3 5.6
745.6 175 123.5 8.7
585.2 113 118.4 11.4
450.3 82 65.4 9.6
327.8 46 61.6 12.4
260.5 32 54.3 18.3
477.5 89 97.4 4.6
389.8 67 82.4 6.7
312.4 47 56.4 8.4
367.5 59 71.3 7.6
374.4 61 67.4 9.8
494.6 87 96.3 11.3
487.5 92 86.4 4.7
