An Investor Is Considering Two Types of Investment

Essay

An investor is considering two types of investment. She is quite satisfied that the expected return on investment 1 is higher than the expected return on investment 2. However, she is quite concerned that the risk associated with investment 1 is higher than that of investment 2. To help make her decision, she randomly selects seven monthly returns on investment 1 and ten monthly returns on investment 2. She finds that the sample variances of investments 1 and 2 are 225 and 118, respectively.
Estimate with 95% confidence the ratio of the two population variances, and briefly describe what the interval estimate tells you.