ASB2411 Quantitative methods for business: Assignment (20%)
Aims:
The aim of this assignment is to demonstrate your ability to:
carry out basic calculations using MS Excel
describe and summarise data using tables, graphs and measures of central tendency and
dispersion
estimate and specify confidence intervals
apply the methods of statistical inference to formulate and test hypotheses
analyse data, and interpret the results
Task:
In the spreadsheet file Country assignment_2017.xlsx (available on Blackboard), you have been
assigned to study consumer price inflation in two countries, Country A and Country B. (The pair of
countries assigned is different for each student).
Annual Consumer Price Index (CPI) data for the period 1979-2010 for your two assigned countries
can be extracted from the spreadsheet file cpi.xlsx. (The data in this file for all other countries should
be ignored!)
1. Using the formula
1t 1ttt p pp10 0
, where t is the annual percentage rate of inflation
between years t–1 and t, and pt is the value of the CPI in year t, calculate t for each year
from t=1980 to t=2010 for Country A and for Country B. Using these data, complete the
following table of descriptive statistics:
Mean
inflation
Standard
deviation of
inflation
Median
inflation
Minimum
inflation
Maximum
inflation
Country A
1980-1999 ? ? ? ? ?
2000-2010 ? ? ? ? ?
Country B
1980-1999 ? ? ? ? ?
2000-2010 ? ? ? ? ?
[Total – 25 marks]
2. Present time-series plots of inflation against time for:
a. country A for the period 1980-2010. (5 marks)
b. country B for the period 1980-2010. (5 marks)
[Total – 10 marks]
3. Assuming that the annual inflation rates of Countries A and B are normally distributed, and
interpreting each country’s data on t for the period 1980-1999 as a random sample of 20
observations drawn from a fixed population distribution of all possible inflation rates for
each country, construct the following confidence intervals, commenting briefly on what the
confidence interval is demonstrating:
a. 95% confidence interval for the population mean inflation rate of Country A.
(5 marks)
b. 99% confidence interval for the population mean inflation rate of Country A.
(5 marks)
c. 95% confidence interval for the population mean inflation rate of Country B.
(5 marks)
d. 90% confidence interval for the population mean inflation rate of Country B.
(5 marks)
[Total – 20 marks]
4. Assuming that the annual inflation rates of Countries A and B are normally distributed, and
interpreting each country’s data on t as a random sample, use appropriate hypothesis tests
to evaluate the following assertions concerning the (population) mean inflation rates of
Countries A and B. Use a significance level of α=0.05. Briefly comment on your answers.
a. Country A’s (population) mean inflation throughout the period 1980-2010 was
3%. (5 marks)
b. Country B’s (population) mean inflation throughout the period 2000-2010 was
less than 3.5%. (5 marks)
c. Country A’s (population) mean inflation during the 11-year period of euro
membership 2000-2010 was significantly less than Country A’s (population) mean
inflation during the 20-year period prior to euro membership 1980-1999. [Treat the
observations on t for the two periods as independent samples.] (5 marks)
d. Country A’s (population) mean inflation during the period 2000-2010 was
significantly different from Country B’s (population) mean inflation during the same
period. [Treat the samples of observations on t for the two countries during the
period 2000-2010 as matched pairs.] (5 marks)
[Total – 20 marks]
5. Country C, an applicant for EU membership, has an annual inflation rate that is known to
behave as a normally distributed random variable, with a population mean and population
variance identical to the numbers for the sample mean and sample variance reported for
Country A during the period 2000-2010 (see Q1).
a. Calculate the probability that Country C’s inflation rate in any future year is
less than 1.5%. (5 marks)
b. Calculate the probability that Country C’s inflation rate in any future year is
greater than 2.5%. (5 marks)
c. Calculate the probability that Country C’s average inflation rate over the next
4 years is greater than 2%. (5 marks)
[Total – 15 marks]
6. Using the data on t in Country B for t=1980 to t=1999 (20 observations), calculate p = the
proportion of years in which Country B’s rate of inflation was greater than 5%.
In a certain emerging country D, which has an economic structure similar to that of Country
B during the 1980s and 1990s, episodes of annual inflation above 5% are known to occur
randomly, with a probability of p (as calculated above). The Governor of Country D’s central
bank had set a maximum annual inflation target of 5% in each of the next 6 years.
a. Calculate the probability that Country D’s inflation target will not be breached
in any of the next 6 years. (5 marks)
b. Calculate the probability that Country D’s inflation target will be breached in exactly
2 of the next 6 years. (5 marks)
[Total – 10 marks]
Guidance:
Hints on how to go about answering questions 1 to 6 can be found in the Word file
assignment_hints.doc (available on Blackboard)
For Q1-Q2, only the completed table and graphs are required. It is not necessary to show the
supporting calculations, and the spreadsheet file in which you have done the calculations is not
required.
For Q3-Q6, all solutions and supporting calculations are required.
No marks will be awarded for solutions that refer to countries other than those you have been
assigned personally (Please see ‘List of assigned countries’ on Blackboard for your assigned countries)
Relevant lecture notes: Part 1 – Presentation and description of data, Part 2 – Probability Theory
and Part 3 – Statistical Inference (Confidence Intervals and Hypothesis Testing)
Submission instructions:
The deadline for this assignment is Friday 8th December 2017 4pm.
The assignment should be submitted via TurnitIn only. Marks and feedback will be provided
electronically.
Failure to submit by the deadline without a valid reason (completed request for extension via the
online request centre, along with related documentation where applicable e.g. medical note) will
result in a mark of F(4).