Bock Investment Services

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Bock Investment Services

Lisa started Bock Investment services in 1994 with the goal of making BIS the leading money market advisory service in Southern Carolina. To provide better service for her present clients and to attract new clients, she has developed a weekly newsletter. Lisa has been considering adding a new feature to the newsletter that will report the result of a weekly telephone survey of fund managers. To investigate the feasibility of offering this service and to determine what type of information to include in the newsletter, Lisa selected a simple random sample of 45 money market funds. Before calling the money managers fund to collect new data, Lisa decided to do some preliminary analysis of the data already collected.

1.Use appropriate descriptive statistics to summarize the data on assets and yields for the money market funds.

I will summarize the most appropriate descriptive statistics in the following table for the 3 variables of interest, as a starting point in the analysis:

• For assets, it is very clear that the range is very big; this is a first indication that the assets data has a lot of variability. Also, mean and median are very different for assets: this is an indication that some outlier may exist, because the median is less sensitive to outliers than the average.
• For the 2 yield values, there is much less variability in the data, because the standard deviation is a small percentage of the mean, and the data seems to be more centered, as mean, mode and median have similar values.

Looking at a Box&Whisker box plot for the assets data, the presence of the outliers becomes visually clear:

• It is not surprising to see “big names” in the extreme outliers: those are the money market funds with huge assets values.
• As a final statement to summarize the findings on the data, I can say that the assets data has a lot of variability, while the yield data is very much concentrated around the average value.

2.Develop a 95% confidence interval estimate of the mean assets, mean 7 day yield, and mean 30-day yield for the population of the money market funds. Provide a managerial interpretation of each interval estimate.

Since the sample size is n=45 (>30), I can use a standard normal distribution to compute the interval estimation; 95% confidence level corresponds from the table to z=1.96. Since the standard deviation for the population of money market funds is unknown, the standard deviation of the sample is used. Given that the sample is statistically large (>30) the error in doing that is small. The standard error for the means for the 3 variables are then the standard deviations of the sample data divided by sqrt(n)=6.71. The numbers involved in the calculation are summarized in the following table.

Managerial interpretation of each interval estimate:

The assets have a lot of variability compared to the yields: if we pick a simple random sample of 45 funds, we are 95% confident that the mean asset value will be within plus or minus ~70% from the true mean value of the population of the funds.

On the other hand, the yields have very little variability: if we pick a simple random sample of 45 funds, we are 95% confident that the mean yield value will be within plus or minus ~2% from the true mean value of the population of the funds.

3.Discuss the implication of your findings in term of how Lisa could use this type of information in preparing her weekly newsletter.

Based on the sample of data provided, it seems that the mean value of the assets of the money market fund is not good information to add to the newsletter, because the confidence interval is quite large, indicating significant variability in the data. In other words, since I am not comfortable enough that the sample is representative of the population, I am not willing to publish that data.

On the other hand, given the little variability in the mean of the yield values, it seems that providing the readers with the yields data will add value to the newspaper.

4.What other information would you recommend that Lisa gather to provide the most useful information to her clients?

I think that people willing to choose a money market fund would take into great consideration also the long term yield of the fund: for example the 1 year yield. People generally put money in the money market to cope with difficult periods in stock market, and in that case they care about short term yield (7days, 1 month). Many people also put money in the money market funds for cash reserve purposes, in order to have money ready for any emergency; in this particular case their money is likely to sit on the money market for months or years, and they will be concerned more about long term yields (6 months, 1 year). Even if the magazine is weekly, I think it would still add value for the reader to have long term yield data. Based on the yield data shown, it is reasonable to assume that the long-term yield also will show small variability, and will thus be reliable information to write in the newspaper.

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