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Time in bankruptcy.Refer to the Financial Management(Spring 1995) study of 49 firms filing for prepackagedbankruptcies, Exercise 2.32 (p. 86). Recall that three typesof 鈥減repack鈥 firms exist: (1) those who hold no prefilingvote, (2) those who vote their preference for a joint solution;and (3) those who vote their preference for a prepack.

a.Construct a box plot for the time in bankruptcy (months) for each type of firm.

b.Find the median bankruptcy times for the three types.

c.How do the variabilities of the bankruptcy times compare for the three types?

d.The standard deviations of the bankruptcy times are 2.47 for 鈥渘one,鈥 1.72 for 鈥渏oint,鈥 and 0.96 for 鈥減repack.鈥 Do the standard deviations agree with the interquartile ranges concerning the comparison of the variabilities of the bankruptcy times?

e.Is there evidence of outliers in any of the three distributions?

Short Answer

Expert verified

a.

b. None = 3.2, Pre-pack = 1.4, Joint = 1.5

c. Firms with joint solutions have the most variability

d. Only for pre-pack, the standard deviation agrees with IQR

e. Firms with no prefiling and with a pre-pack have outliers

Step by step solution

01

Step-by-Step Solution Step 1: Constructing a box plot

Arranging the data in ascending order,

First, calculating the information needed to construct a box plot for no prefilling vote,

Q1(None)=N+14=11+14=124=3rdterm=2.6

Q2(None)=N+12=11+12=122=6thterm=3.2

Q3(None)=3(N+1)4=3(11+1)4=364=9thterm=4.2

IQR=QU鈥换L=4.2鈥2.6=1.6

LowerInnerFence=QL1.5(IQR)=2.61.5(1.6)=2.62.4=0.2

UpperInnerFence=QU+1.5(IQR)=4.2+1.5(1.6)=4.2+2.4=6.6

Second, calculating the data needed for a box plot of pre-pack votes

Q1(prepack)=N+14=27+14=284=7thterm=1.2

Q2(prepack)=N+12=27+12=282=14thterm=1.4

Q3(prepack)=3(N+1)4=3(27+1)4=844=21thterm=2.1

IQR=QU鈥换L=2.1鈥1.2=0.9

LowerInnerFence=QL1.5(IQR)=1.21.5(0.9)=1.21.35=0.15

UpperInnerFence=QU+1.5(IQR)=2.1+1.5(0.9)=2.1+1.35=3.45

Third, computing the data for joint votes,

Q1(Joint)=N+14=11+14=124=3rdterm=1.4

Q2(Joint)=N+12=11+12=122=6thterm=1.5

Q3(Joint)=3(N+1)4=3(11+1)4=364=9thterm=4.5

IQR=QUQL=4.51.4=3.1

LowerInnerFence=QL1.5(IQR)=1.41.5(3.1)=1.44.65=3.25

UpperInnerFence=QU+1.5(IQR)=4.5+1.5(3.1)=4.5+4.65=9.15

Finally, constructing the box plot,

02

Finding the median bankruptcy time for all types of firms

Median(None)=N+12=11+12=122=6thterm=3.2

Median(prepack)=N+12=27+12=282=14thterm=1.4

Median(Joint)=N+12=11+12=122=6thterm=1.5

03

Comparing the variabilities

Bankruptcy time for firms with a pre-pack is lower than the other two types of firms. The IQR is the highest for firms with a joint pack, followed by the firms with no prefiling.

04

Making a relation between the IQR and the standard deviations

The standard deviation and the IQR for the firms with no prefiling are 2.47 and 1.6, respectively. A very significant gap between the two numbers indicates the impact of outliers on the standard deviation.

The IQR (0.9) and the standard deviation (0.96) for pre-pack firms are almost the same. Whereas the IQR (3.1) and standard deviation (1.72) for the joint group are pretty far from each other, implying outliers' impact.

05

Identifying the outliers

Based on the boxplots created in step 1, we can say that there are 2 outliers (7.8, 10.1) in the no prefiling group. And 3 outliers (3.8, 4.1, 4.1) in the group of firms with pre-pack.

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