QUESTION #1

Starting in 2008 an increasing number of people found themselves facing mortgages that were worth
more than the value of their homes. A fund manager who had invested in debt obligations involving
grouped mortgages was interested in determining the group most likely to default on their mortgage. He
speculates that older people are less likely to default on their mortgage and thinks the average age of
those who do is 55 years. To test this, a random sample of 30 who had defaulted was selected; the
following sample data reflect the ages of the sampled individuals:

Ages in Years
40 55 78 27 55 33
51 76 54 67 40 31
60 61 50 42 78 80
25 38 74 46 48 57
30 65 80 26 46 49

a. State the appropriate Research hypotheses.

b. Use the test statistic and p-value approach (in SPSS) to test the null hypothesis with α =0.01
and 0.05.
c. What FINAL conclusions are achieved from this survey? Explain in detail.
d. Check the Assumptions as discussed in class lecture and see if any Transformation needed.
Solution:
a) Here the parameter of interest is the population mean of individuals who defaulted
Let Ho be the null hypothesis and Ha be the alternative hypothesis
Here,
Ho: µ ≥ 55
Ha: µ <55

SPSS Steps:

 Enter the data into SPSS sheet under Ages column.

 Go to Analyze → Compare means → One sample T Test.
 Insert Ages column into Test variable(s).
 Test Value is 55.
 Click OK.

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Output:

Test Value: The number (55) we entered as the test value in the One-Sample T Test window.
 t Statistic: The test statistic of the one-sample t test, denoted t. In this example, t = -.935. Note that t is
calculated by dividing the mean difference (E) by the standard error mean (from the One-Sample
Statistics box).
 df: The degrees of freedom for the test. For a one-sample t test, df = n - 1; so here, df = 30- 1 = 29.
Sig. (2-tailed): The two-tailed p-value corresponding to the test statistic.
Mean Difference: The difference between the "observed" sample mean (from the One Sample Statistics
box) and the "expected" mean (the specified test value). The sign of the mean difference corresponds to
the sign of the t value . The negative t value in this example indicates that the average age of the sample is
less than the hypothesized value (55).
Confidence Interval for the Difference: The confidence interval for the difference between the
specified test value and the sample mean. This shows that the difference in average age
b) t-test statistic value = -0.935.
P-value (1-tailed) = .358/2=0.179
c) Conclusion:
The P-value is greater than the 1% and 5% level of significance. We do not reject the null
hypothesis at the 5% and 1% level of significance. We can conclude that the older people are not
less likely to default on their mortgage and think that the average age of those who do is 55
years.

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d) Assumptions:
 The parent population from which the sample is taken should be normally distributed.
 Random sample of data from the population
 Scores on the test variable are independent

QUESTION # 2

The National Club Association does periodic studies on issues important to its membership. The
2008Executive Summary of the Club Managers Association of America reported that the
average country club initiation fee was $31,912. Suppose a random sample taken in 2009 of 12
country clubs produced the following initiation fees:

$29,121 $31,472 $28,054 $31,005 $36,295 $32,771

$26,205 $33,299 $25,602 $33,726 $39,731 $27,816

a- Based on the sample information, using SPSS, can you conclude at the α=0.05 level of
significance that the average2009 country club initiation fees are lower than the 2008 average?
Conduct your test at the =0.05level of significance.
b- Estimate the true average value of club fee with 95% confidence level.
c- Check Assumptions
d-Interpret all results in detail.
Solution:
Here the parameter of interest is country club initiation fees

Let Ho be the null hypothesis and Ha be the alternative hypothesis

Here,

Ho: µ ≥ 31912
Ha: µ < 31912

SPSS Steps:

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 Enter the data into SPSS sheet under initiative fees column.
 Go to Analyze → Compare means → One sample T Test.
 Insert initiative fees column into Test variable(s).
 Test Value is 31912.
 Click OK.

Output:

Two sections (boxes) appear in the output: One-Sample Statistics and One-Sample Test. The

first section, One-Sample Statistics, provides basic information about the selected
variable, initiation fees, including the valid sample size (n), mean, standard deviation, and
standard error. In this example, the mean initiation fees of the sample is $31258, which is based
12 observations.
One-Sample Statistics

N Mean Std. Deviation Std. Error Mean

initiation fees 12 31258.0833 4199.80163 1212.37830

The second section, One-Sample Test, displays the results most relevant to the One
Sample t Test. 

One-Sample Test

Test Value = 31912

t df Sig. (2-tailed) Mean Difference 95% Confidence Interval of the

Difference

Lower Upper

initiation fees -.539 11 .600 -653.91667 -3322.3433 2014.5100

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Test Value: The number (31912) we entered as the test value in the One-Sample T Test window.
 t Statistic: The test statistic of the one-sample t test, denoted t. In this example, t = .539. Note that t is
calculated by dividing the mean difference (E) by the standard error mean (from the One-Sample
Statistics box).
 df: The degrees of freedom for the test. For a one-sample t test, df = n - 1; so here, df = 12- 1 = 11.
Sig. (2-tailed): The two-tailed p-value corresponding to the test statistic.
Mean Difference: The difference between the "observed" sample mean (from the One Sample Statistics
box) and the "expected" mean (the specified test value). The sign of the mean difference corresponds to
the sign of the t value . The negative t value in this example indicates that the mean initiation fees of the
sample is less than the hypothesized value (31912).
Confidence Interval for the Difference: The confidence interval for the difference between the
specified test value and the sample mean.
T-test statistic value = -0.539.
P-value (1-tailed) = .600/2=0.300
Conclusion:

Since p >0.001,p >0.05 we fail to reject the null hypothesis that the sample mean is greater or

equal to the hypothesized population mean and conclude that the average initiation fees of the

sample is not significantly different than the average 2008 country club initiation fees.

Based on the results, we can state the following:

 There is a no significant difference in average initiation fees between the sample and the 2008
average initiation fees (p > .001), (p > .05).
 The average initiation fees of the sample is about $-653.9 less than the 2008 average initiation
fees

Assumptions:
 Data is collected from a representative, randomly selected portion of the total population.
 Data when plotted results in normal distribution
 The Data is a random sample

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