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Chapter 7: Q14E (page 398)

Libor interest rate. The interest rate at which London banks lend money to one another is called the London interbank offered rate, or Libor. The British Bankers Association regularly surveys international banks for the Libor rate. One recent report (Bankrate.com, March 16, 2016) had the average Libor rate at 1.2% for 1-year loans鈥攁 value considered high by many Western banks. Set up the null and alternative hypotheses for testing the reported value.

Short Answer

Expert verified

H0: r = 0.012

Ha: r> 0.012

Step by step solution

01

Given the information

The London interbank offered rate (LIBOR) is given.

The British bankers association surveys the labor rate.

02

Formulate the hypothesis

The bankers want to make an inference about r.

A report had the average labor rate at 1.2%. i.e.,r > 0.012 represents the alternative hypothesis and r = 0.012 represents the null hypothesis.

That is, the banker desires the right-tailed test.

Therefore,

The null hypothesis is given by

H0: r = 0.012

An alternative hypothesis is given by

Ha: r > 0.012

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