Altman and Kishore (1996), in the course of a study on the recovery rates on defaulted bonds, investigated the recovery of utility bonds versus other bonds, stratified by seniority.
The following table excerpts their findings.
Assume that the populations (recovery rates of utilities, recovery rates of non-utilities) are normally distributed and that the samples are independent. The population variances are unknown; do not assume they are equal. The test hypotheses are H0: μ1 μ2 = 0 versus Ha:
μ1 μ2 0, where μ1 is the population mean recovery rate for utilities and μ2 is the population mean recovery rate for non-utilities.
A. Calculate the test statistic.
B. Determine whether to reject the null hypothesis at the 0.01 significance level without reference to degrees of freedom.
C. Calculate the degrees of freedom.
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