Question: Consider the monthly stock returns presented in Table 1. Test the hypothesis that average monthly return for the given sample of firms was greater than 4 per cent. Please ensure that you clearly show the following steps.

(a) Formulate an appropriate null and alternative hypothesis.

(b) Find the critical region.

(c) Construct the test statistic.

(d) Conclude whether you would or you would not reject the null hypothesis at the 5 per cent level of significance.

(e) State the assumptions underlying the test.