EDITH COWAN UNIVERSITY

FACULTY OF BUSINESS & LAW

SCHOOL OF ACCOUNTING, FINANCE AND ECONOMICS

ECF5661
QUANTITATIVE STUDIES

SUBMITTED TO: JAMIE YONG

PART A
Question 1
If a worker is selected randomly from Arnotts, what is the probability that the worker is a
woman? If a senior managerial person is selected at random, what is the probability that the
person is a woman? What factors may cause any apparent discrepancy between probabilities?
Solution:

X number _ of _ favourable _ outcomes

P(X) = or
T Total _ number _ of _ possible _ outcomes
2204
P (female) = = 0.50
4386
Probability that worker will be woman is 0.50

114 34
P (Senior Management & Female) = X = 0.01
4386 114
Probability that senior managerial person is selected and the person is woman is 0.01
Question 2
Suppose a special bonus is being given to one person in the distribution staff this year. If the
bonus is awarded randomly, what is the probability that it will go to a woman given that it goes
to one of the distribution staff?
Solution:
373 22
P (Distribution Staff & female) = X = 0.01
4386 373
Therefore, the probability that it will go to woman given it goes to one of the distribution staff
will be 0.01
Question 3
Suppose that at the annual holiday party the name of an employee of the client company will be
drawn randomly to win a trip to Bali. What is the probability that a line managerial person will
be the winner?
Solution:
252
P (Line management) = = 0.06
4386
Probability that a line managerial person will be the winner for a trip to Bali is 0.06

Question 4
What is the probability that the winner will be either a man or administrative staff? What is the
probability that the winner will be a woman and in senior management? Suppose the winner is a
man, what is the probability he is from the shop floor staff?
Solution
Let ‘A’ be the administrative staff and ‘B’ be the male staff
Therefore,
P (A or B) = P (A) +P (B) – P (A and B)

P (Administrative Staff or Male) = P (Administrative Staff) + P (Male)

– P (Administrative Staff & Male)

2
 972 2182 231
P (Administrative Staff or Male) = + -
4386 4386 4386
= 0.22 + 0.50 – 0.11
Probability that winner will be either administrative staff or male is 0.61

114 34
P (Senior Management and Female) = x = 0.01
4386 114
Probability that the winner will be woman and in senior management is 0.01

2297 1119
P (Shop Floor Staff and Male) = X = 0.26
4386 2297
Probability that the winner is man and is from shop floor staff is 0.26

PART B
(a)
Using the sample data attached, calculate the sample mean and standard deviation for the
variables:-
- P/E Ratio
- Dividend Yield (%)
- NTA/Share

Solution:
Mean Standard Deviation
P/E ratio 19.41 24.08
Div Yield 6.67 4.09
(%)
NTA/Share 4.03 4.92
(b)

3
Is there any evidence of skewness in the data sets? Which data set displays greatest skewness?
Solution:

3(mean  median)
Skewness =
s tan dard _ deviation

Skewness

P/E Ratio 0.93

Dividend Yield 0.61

NTA/ share 0.74

Mkt Cap Bil 1.36

The given sets of data are skewed right where Mkt cap Bil data set has a greatest skewness of
1.36

(c)
Using the sample data on P/E Ratio, calculate the sample proportion of companies whose P/E
ratio exceeds 20 and its corresponding standard deviation.
Solution
number _ of _ successes( X )
Sample proportion (P) =
Sample _ size(n)
ASX P/E
  CODE Company Name Ratio
C'wlth Bank of
1 CBA Aust 139.30
2 WOW Woolworths Ltd 21.00
3 CSL CSL Ltd 29.80
4 ORG Origin Energy 29.20
5 FGL Foster's Grp 100.00
6 NCM Newcrest Min 67.90
7 AGK AGL Energy Ltd 29.00
8 AMC Amcor Ltd 20.70

4
 ResMed Inc cdi
9 RMD 10:1 36.90
10 LGL Lihir Gold Ltd 51.10

10
P= 50
= 0.20 or 20%

(d)
Set up and interpret the following confidence intervals:-
(i) A95% confidence interval for the true population mean P/E ratio
Solution:
η = 50
X = 19.41
σ = 24.08
α = 0.05
 
95% of C.I for μ = X ± Z α/2    
 

= 19.41 ± (1.96)  24.08 50 

= 19.41 ± 6.67
Hence, C.I at 95% is 12.74 < μ < 26.08

(ii) A 99% confidence interval for the true population mean Div yield (%)

Solution:
η = 50
X = 6.67
σ = 4.09
α = 0.01
 
99% of C.I for μ = X ± Z α/2   
 

= 6.67 ± (2.575)  4.09 50 

= 6.67 ± 1.49
Hence, C.I at 99% is 5.18 < μ < 8.16

5
 (iii) A 90% confidence interval to estimate the true population proportion of all companies
whose P/E ratio is better than 20.
Solution:
ASX P/E
  CODE Company Name Ratio
C'wlth Bank of
1 CBA Aust 139.30
2 WOW Woolworths Ltd 21.00
3 CSL CSL Ltd 29.80
4 ORG Origin Energy 29.20
5 FGL Foster's Grp 100.00
6 NCM Newcrest Min 67.90
7 AGK AGL Energy Ltd 29.00
8 AMC Amcor Ltd 20.70
ResMed Inc cdi
9 RMD 10:1 36.90
10 LGL Lihir Gold Ltd 51.10

η = 10
X = 52.49
σ = 39.28
α = 0.10
 
90% of C.I for μ = X ± Z α/2   
 

= 52.49 ± (1.645) 39.28 10 

= 52.49 ± 20.45
Hence, C.I at 90% is 32.04 < μ < 72.94 for the population proportion of all companies
whose P/E ratio is better than 20.

(e)

6
A follow-up study will provide a point estimate of the population proportion of companies with a
P/E ratio that exceeds 23. The study must provide 90% confidence that the point estimate is
within 0.10 of the population proportion. If no previous proportion estimate is available (not
even that calculated in (c) above), how large a sample would you recommend for this study?
Solution:

(1-α) = 90%

е = 0.10
Z α/2 = 1.645

ASX P/E
  CODE Company Name Ratio
1 CBA C'wlth Bank of Aust 139.3 Sample proportion
2 CSL CSL Ltd 29.8 X number _ of _ successes
3 ORG Origin Energy 29.2 P= =
N Sample _ size
4 FGL Foster's Grp 100
5 NCM Newcrest Min 67.9 Number of successes = 8
6 AGK AGL Energy Ltd 29 Sample Size = 50
7 RMD ResMed Inc cdi 10:1 36.9 8
8 LGL Lihir Gold Ltd 51.1 Hence, P = = 0.16
50

Sample Size

7
 η=
 Z  2   1   
2

 e 2

1.645  0.16 0.84

2

 0.10
= 2

= 36.36  37

(f)
Stock market analysts claim that on average the P/E ratio of all companies in the ASX 50 is more
than 18. Do the data provide significant support for this claim? Use a 5 % significant level and
the critical value approach (classical approach) to test this claim.
Solution:
η = 50
X = 19.41
σ = 24.08
α = 0.05

H0: μ >18 one-tail test

H1: μ  18 lower limit

8
Reject H0 if Z test < -1.645

Under H0,
 
Z test =  

19.41  18
= 24.08 50

= 0.413490

Since, Z test (0.413490) > Zcv

Unable to reject
Conclusion: 95% confidence determines that there is significant evidence to support
average of the P/E ratio of all the companies in ASX 50 is more than 18.

9
 Reject

Unable to reject

0.05

-1.645 0.41349
Z

(g)
JASSA, the latest Finance journal, has claimed that less than 30 % of all companies in the ASX
50 have a dividend yield (%) that is more 10 or more. How much evidence do the data provide to
support this claim? Use a 0.05 level of significance and the p-value approach to test the claim.
Solution
ASX Div
  CODE Company Name yield %
1 WES Wesfarmers Ltd 11.24
2 SUN Suncorp-Metway 14.86
3 MQG Macq Grp Ltd 15.18
4 SGP Stockland stpld 12.08
5 QAN Qantas Airways 14.29
6 GPT GPT Grp stpld 20.45
Telecom Corp fpo
7 TEL nz 11.6
η = 50
 = 0.30
α = 0.05
x=7
Sample proportion

10
 X number _ of _ successes
P= =
N Sample _ size
Number of successes = 7
Sample Size = 50
8
Hence, P = = 0.14
50

 p =  0.30 0.70  = 0.064807

50

H0:  >30 one-tail test

H1:   30 lower limit
Reject H0 if Z test < -1.645

Under H0,
p 
Z test = 
p

0.14  0.30
=
0.064807
= - 2.4688

Since, Z test (-2.4688) > Z cv; hence Reject

Conclusion: 95% confidence determines that there is no significant evidence to support the
claim of dividend yield of all the companies in ASX 50 is 10 or more.

11
 Reject

Unable to reject

0.05

-2.4688 -1.645
Z

P - Value Approach
DR: P-value (Z) < α; we Reject

P-value (Z (-2.4688)) = 0.0069

P-value (Z (0.0069)) < 0.05
Hence we reject
Conclusion: 95% confidence determines that there is no significant evidence to support the
claim of dividend yield of all the companies in ASX 50 is 10 or more.

12
(h)
The ASX claims that the average Net Tangible Assets for companies in the ASX50 is 3.5. Test
this claim at alpha= 0.01.
Solution:
η = 50
X = 4.03
σ = 4.92
α = 0.01

H0: μ =3.5 two-tail test

H1: μ  3.5
Reject H0 if -2.575 < Z test < 2.575

Under H0,
 
Z test =  

4.03  3.5
= 4.92 50

= 0.768116

Since, Zcv < Z test (0.768116) < Zcv

Unable to reject
Conclusion: 99% confidence determines that there is significant evidence to support claim
that average NTA of all the companies in ASX 50 is 3.5.

13
 Reject
Reject

Unable to reject
0.005 0.005

0.768116
-2.575 Z 2.575

(i)
Imagine that your sample data set only included the first fifteen companies with the largest
market capitalization listed in your original data set. For this new data set, you are now told that
the P/E ratio of companies has followed the normal distribution in the past. With this reduced
data set, test the claim that on average the P/E ratio of all companies is more than 18 at the 1%
significance level. Compare this result to your answer in Part A (f). Can you suggest any reasons
for the variation, if one exists?
Solution:
ASX Mkt Cap P/E
  Code Company Name Bil ratio
1 BHP BHP Billiton Ltd 88.601 9.20
2 TLS Telstra Corp 53.007 14.20
C'wlth Bank of
3 CBA Aust 44.785 139.30
4 WOW Woolworths Ltd 34.627 21.00
National Aust
5 NAB Bank 33.992 7.50
6 RIO Rio Tinto Ltd 32.891 7.90
7 WBC Westpac Banking 31.832 8.20
News Corp b
8 NWS voting 30.136 15.30
Westfield Grp
9 WDC stpld 28.256 10.30

14
 10 ANZ ANZ Banking Grp 28.123 6.50
11 WPL Woodside Pet 25.777 17.60
QBE Insurance
12 QBE Grp 23.071 12.20
13 CSL CSL Ltd 22.89 29.80
14 ORG Origin Energy 15.242 29.20
15 WES Wesfarmers Ltd 14.431 9.90

η = 15
X = 22.54
s = 24.08
α = 0.01

H0: μ >18 one-tail test

H1: μ  18 lower limit

Since,
Sample size is small (n < 30)
 Unknown
& Data set is normally distributed
Hence, we use‘t’ test.
Df = n-1 = 14
Tcv = t0.01, 14df = -2.624

Reject H0 if t test < -2.624

Under H0,
 
t test = s 

22.54  18
= 24.08 15

= 0.731

15
Since, t test (0.731) > tcv
Unable to reject
Conclusion: 99% confidence level determines that there is no significant evidence to
support average of the P/E ratio of all the companies in ASX 50 is more than 18.
There is little variation compared to answer Part B (f), it is because of the difference in
significance level, however result is the same.

PART C
(a)
All confidence intervals in Part B (d) above.
(i)
Confidence Interval Estimate for the Mean

Data
Sample Standard Deviation 24.08
Sample Mean 19.41
Sample Size 50
Confidence Level 95%

Intermediate Calculations
Standard Error of the Mean 3.405426258
Degrees of Freedom 49
t Value 2.009575199
Interval Half Width 6.843460152
   
Confidence Interval
Interval Lower Limit 12.57
Interval Upper Limit 26.25

(ii)
Confidence Interval Estimate for the Mean

16
 Data
Sample Standard Deviation 4.09
Sample Mean 6.67
Sample Size 50
Confidence Level 99%

Intermediate Calculations
Standard Error of the Mean 0.578413347
Degrees of Freedom 49
t Value 2.679951964
Interval Half Width 1.550119986
   
Confidence Interval
Interval Lower Limit 5.12
Interval Upper Limit 8.22

(iii)
Confidence Interval Estimate for the Mean

Data
Sample Standard Deviation 26.25257659
Sample Mean 42.84
Sample Size 9
Confidence Level 90%

Intermediate Calculations
Standard Error of the Mean 8.750858864
Degrees of Freedom 8
t Value 1.859548033
Interval Half Width 16.27264239
   
Confidence Interval
Interval Lower Limit 26.57
Interval Upper Limit 59.12

(b)
The sample size calculation in Part A (e) above.

17
 Sample Size Determination

Data  
Estimate of True Proportion 0.16
Sampling Error 0.1
Confidence Level 90%

Intermediate Calculations
Z Value -1.64485363
Calculated Sample Size 36.36250402

Result
Sample Size Needed 37

(c)
Hypothesis test of the mean P/E ratio in Part A (f) above.

Z Test of Hypothesis for the Mean

Data
Null Hypothesis = 18
Level of Significance 0.05
Population Standard Deviation 24.08
Sample Size 50
Sample Mean 19.41

Intermediate Calculations
Standard Error of the Mean 3.405426258
Z Test Statistic 0.414045084

Lower-Tail Test  
Lower Critical Value -1.644853627
p-Value 0.660579455
Do not reject the null hypothesis  

(d)
The p-value approach to the hypothesis test of the proportion in Part A (g)

18
 Z Test of Hypothesis for the Proportion

Data
Null Hypothesis = 0.3
Level of Significance 0.05
Number of Successes 7
Sample Size 50

Intermediate Calculations
Sample Proportion 0.14
Standard Error 0.064807407
Z Test Statistic -2.468853599

Lower-Tail Test  
Lower Critical Value -1.644853627
p-Value 0.006777333
Reject the null hypothesis  
(e)
The hypothesis test of the mean NTA in Part A (h)
Z Test of Hypothesis for the Mean

Data
Null Hypothesis = 3.5
Level of Significance 0.01
Population Standard Deviation 4.92
Sample Size 50
Sample Mean 4.03

Intermediate Calculations
Standard Error of the Mean 0.695793073
Z Test Statistic 0.757983976

Two-Tail Test  
Lower Critical Value -2.575829304
Upper Critical Value 2.575829304
p-Value 0.448460575
Do not reject the null hypothesis  

(f)
The hypothesis test of the mean P/E ratio in Part A (i)
t Test for Hypothesis of the Mean

19
 Data
Null Hypothesis = 18
Level of Significance 0.01
Sample Size 15
Sample Mean 22.54
Sample Standard Deviation 33.14105783

Intermediate Calculations
Standard Error of the Mean 8.556984338
Degrees of Freedom 14
t Test Statistic 0.530560747

Upper-Tail Test  
Upper Critical Value 2.624494064
p-Value 0.302018936
Do not reject the null hypothesis  

PART D
Using both manual and computer derived solutions students are asked to formulate two models
that attempt to explain the demand for beer consumed in Australia as a function of

20
 (i) Price of beer
(ii) Income

Using simple ordinary least squares regression formulae based solutions and the regression
package on the Ph stat software. Confirm your answers with the appropriate Ph stat computer
printout. Attach this output to this assignment.
Solution:

xy(price x xy(income x
consumption of price of consumption consumption
Year beer(y) beer(x) income(x) of beer) of beer)
1966 113.13 0.46 1213.78 52.0398 137314.9314
1967 116.93 0.48 1301.41 56.1264 152173.8713
1968 120.53 0.49 1382.66 59.0597 166652.0098
1969 123.72 0.51 1493.26 63.0972 184746.1272
1970 125.84 0.54 1605.17 67.9536 201994.5928
1971 125.67 0.57 1736.92 71.6319 218278.7364
1972 129.51 0.6 1915.05 77.706 248018.1255
1973 138.94 0.65 2241.07 90.311 311374.2658
1974 140.42 0.74 2686.15 103.9108 377189.183
1975 137.39 0.93 3177.69 127.7727 436582.8291
1976 135.01 1.02 3567.23 137.7102 481611.7223
1977 134.8 1.07 3911.95 144.236 527330.86
1978 130.81 1.24 4359.2 162.2044 570226.952
1979 132.29 1.34 4858.15 177.2686 642684.6635
1980 129.34 1.46 5426.84 188.8364 701907.4856
1981 128.63 1.61 6081.78 207.0943 782299.3614
1982 121.68 1.84 6814.54 223.8912 829193.2272
1983 117.76 2.01 7418.38 236.6976 873588.4288
1984 114.46 2.18 8058.17 249.5228 922338.1382
1985 115.47 2.37 8863.55 273.6639 1023474.119
1986 111.3 2.61 9697.11 290.493 1079288.343
1987 110.8 2.85 10632.2 315.78 1178047.76
1988 115.4 2.9 11588.1 334.66 1337266.74
1989 113.9 3.08 12701.13 350.812 1446658.707
1990 110.6 3.34 13219.29 369.404 1462053.474
1991 104 3.45 13859.85 358.8 1441424.4
1992 99.5 3.55 14406.29 353.225 1433425.855
1993 98 3.67 14901.15 359.66 1460312.7
1994 96.9 3.78 15840.58 366.282 1534952.202
1995 95.3 3.99 16728.52 380.247 1594227.956
1996 94.7 4.1 17184.01 388.27 1627325.747

21
sum 3682.73 59.43 228871.18    
sum of square 442944.8531 160.7699 2546111674    
sum of cross products       6638.3675 25383963.51

(i) Price of beer

Price of the beer (x)
Consumption of beer (y)

59.43 x3682.73
6638.3675 
b1  31
160.7699 
 59.43
2

31

6638.3675  7060.1498
= 160.7699  113 .9331

 421.7823
=
46.8368
=  9.0054

- = Y X
 b1 


n  n 
 

3682.73  59.43 
  ( 9.0054) 
31  31 

22
 = 118 .7977  ( 9.0054) x1.9171

= 118.7977  17.2642
= 136.0619

Ŷ  136.0619  9.0054 xi
Ŷ  136.0619  9.0054 xi

Ph Stat output- Price of Beer

Regression Statistics
Multiple R 0.835221776
R Square 0.697595415
Adjusted R Square 0.68716767
Standard Error 7.535081348
Observations 31

ANOVA
  df SS MS F Significance F
Regression 1 3798.298865 3798.298865 66.89801678 5.10317E-09
Residual 29 1646.546077 56.77745093
Total 30 5444.844942      

Standard
  Coefficients Error t Stat P-value Lower 95% Upper 95%
Intercept 136.0618766 2.507354162 54.26512087 1.02552E-30 130.9337617 141.1899916
X Variable 1 -9.005353795 1.101017338 -8.179120783 5.10317E-09 -11.25718706 -6.753520532

23
 S catter Diag ram
160

140

120

100

80
Y

60

40

20

0
0 0.5 1 1.5 2 2.5 3 3.5 4 4.5
X

Keys:-
Y-axis= Beer consumption
X-axis= Price of the beer

(ii) Income
Income (x)
Consumption of beer (y)

24
 =

228871.18 X 3682.73
25383963.51 
b1  31
2546111674 
 228871.18
2

31
25383963.51  27189379.3781
=
2546111674  1689742484.99
 1805415.8681
=
856369189.010
= -0.002108

- = Y X
 b1 


n  n 
 

3682.73  228871.18 
=   X  0.002108
31  31 
=118.7977+15.5632
=134.3609

Ŷ = 134.3609+-0.002108 X 1
Ŷ = 134.3609-0.002108 X1

Ph Stat Output- Income

Regression Statistics

25
Multiple R 0.836091829
R Square 0.699049547
Adjusted R Square 0.688671945
Standard Error 7.516943052
Observations 31

ANOVA
  df SS MS F Significance F
Regression 1 3806.216389 3806.216389 67.36137674 4.75416E-09
Residual 29 1638.628553 56.50443285
Total 30 5444.844942      

  Coefficients Standard Error t Stat P-value Lower 95% Upper 95%

Intercept 134.3626169 2.32792305 57.71780854 1.74166E-31 129.6014797 139.123754
X Variable 1 -0.002108221 0.000256868 -8.207397684 4.75416E-09 -0.002633576 -0.001582866

S catter Diag ram

160

140

120

100

80
Y

60

40

20

0
0 2000 4000 6000 8000 10000 12000 14000 16000 18000 20000

Keys:-
Y-axis= Income
X-axis= Price of the beer

26