Hypothesis Testing

In the banking industry, the return on equity ratio or percentage is used to evaluate the financial performance of a bank. Such information is extremely valuable to investors.

Calculate the return on equity (ROE) for a sample of 20 banks for the year before the Sarbanes-Oxley Act was enacted. For the same sample of banks, calculate the ROE for the year following the enactment of the Sarbanes-Oxley Act.

Then, answer the following questions:

After the enactment of the Sarbanes-Oxley Act, was the average bank's ROE lower than it was before the act? If so, why do you think that was the case?

What is the null hypothesis for this hypothesis test? Why did you state it in the way that you did?

What is the alternative hypothesis for this hypothesis test? Why did you state it in the way that you did?

Choose at least three different significance levels for conducting the hypothesis test, conduct the test at each of the three significance levels that you have selected, and state the conclusions that you have drawn. How does selection of significance levels effect the interpretation of results?

Is it possible that a Type I error occurred with these hypothesis tests? Why or why not?

Is it possible that a Type II error occurred with these hypothesis tests? Why or why not?