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NISM Certifications · NISM-Series-XV: Research Analyst · Fundamentals of Research

An analyst studies the earnings of 40 listed FMCG firms and finds that the sample mean EPS growth is 12% with a standard deviation of 4%. Using the sample standard error formula (standard deviation divided by square root of n), which is closest to the standard error of the mean, given the square root of 40 is about 6.32?

The standard error of the mean is the sample standard deviation divided by the square root of the sample size. Here 4% divided by about 6.32 gives roughly 0.63%. Using n instead of its square root, or quoting the standard deviation itself, would be incorrect.

  1. A0.63%Correct
  2. B0.10%
  3. C4.00%
  4. D2.53%

Explanation

Standard error = 4% / 6.32 = 0.633%, so about 0.63%. Dividing by n (40) instead of its square root gives 0.10%, which is wrong. 4.00% is just the standard deviation. 2.53% comes from multiplying 4% by 0.632 mistakenly.

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