Standard deviation of returns is often used as a measure of

Standard deviation of returns is often used as a measure of a mutual fund’s volatility (risk). A larger standard deviation of returns is an indication of higher risk. According to Morningstar.com (June 17, 2010), the American Century Equity Income Institutional Fund, a large cap fund, has a standard deviation of returns equal to 14.11 percent. Morningstar.com also reported that the Fidelity Small Cap Discovery Fund has a standard deviation of returns equal to 28.44 percent. Each standard deviation was computed using a sample of size 36. (a) Calculate the value of the test statistic. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Solution

a)

Note that the test statistic is given by

F = s1^2 / s2^2

Thus, here, if we treat Morningstar.com as group 1, and American Century as group 2,

F = 28.44^2 / 14.11^2 = 4.06 [ANSWER]