INSTRUCTOR MANUAL
Instructor’s Manual for Principles of Finance
03/21/22 1
, Instructor’s Manual for Principles of Finance
Chapter 13
Stati sti cal Analysis in Finance
Chapter Summary
Chapter 13 examines the applications of statistical concepts in the finance industry. Statistical
analysis is used extensively in finance, with applications ranging from consumer concerns such
as credit scores, retirement planning, and insurance to business concerns such as assessing
stock market volatility and predicting inflation rates. Business managers employ a wide range of
statistical processes and tools to accomplish these goals. Increasingly, companies are also
interested in data analytics to optimize the value gleaned from business- and consumer-related
data, and statistical analysis forms the core of such analytics. Statistical analysis uses specialized
terminology, and thus the Key Terms at the end of the chapter are essential to understanding
the chapter.
Lecture Outline
13.1 Measures of Center
To summarize a data set, such as financial measurements, you can use various measures of
center. These measures provide an indication of the typical or average data value in a data set.
For example, you might calculate the average closing price of a stock over a three-month period
to get a sense of the typical price of the stock over this time period.
LO 1: Calculate various measures of the average of a data set, such as
mean, median, mode, and geometric mean.
The average of a data set is a way of describing location. The most widely used measures of the
center of a data set are the mean (average), median, and mode. The arithmetic mean is the
most common measure of the average. To calculate the mean of a data set, add the data values
and then divide by the number of data values. To determine the median of a data set, order the
data from smallest to largest, and then find the middle value in the ordered data set. To find
the mode of a data set, determine the most frequently occurring data value.
LO 2: Recognize when a certain measure of center is more appropriate to
use, such as weighted mean.
The median is a better measure of the center of a data set as compared to the mean when
outliers are present. The geometric mean is used to generate the average return of an
investment over time. The weighted mean is used when each data value is assigned a certain
weighting, such as weighting of different stocks purchases in a portfolio based on purchase
price.
LO 3: Distinguish among arithmetic mean, geometric mean, and weighted
mean.
The geometric mean provides a different approach for the center of a data set as compared to
the arithmetic mean. For the arithmetic mean, calculate the sum of the data and divide by the
03/21/22 2
Instructor’s Manual for Principles of Finance
03/21/22 1
, Instructor’s Manual for Principles of Finance
Chapter 13
Stati sti cal Analysis in Finance
Chapter Summary
Chapter 13 examines the applications of statistical concepts in the finance industry. Statistical
analysis is used extensively in finance, with applications ranging from consumer concerns such
as credit scores, retirement planning, and insurance to business concerns such as assessing
stock market volatility and predicting inflation rates. Business managers employ a wide range of
statistical processes and tools to accomplish these goals. Increasingly, companies are also
interested in data analytics to optimize the value gleaned from business- and consumer-related
data, and statistical analysis forms the core of such analytics. Statistical analysis uses specialized
terminology, and thus the Key Terms at the end of the chapter are essential to understanding
the chapter.
Lecture Outline
13.1 Measures of Center
To summarize a data set, such as financial measurements, you can use various measures of
center. These measures provide an indication of the typical or average data value in a data set.
For example, you might calculate the average closing price of a stock over a three-month period
to get a sense of the typical price of the stock over this time period.
LO 1: Calculate various measures of the average of a data set, such as
mean, median, mode, and geometric mean.
The average of a data set is a way of describing location. The most widely used measures of the
center of a data set are the mean (average), median, and mode. The arithmetic mean is the
most common measure of the average. To calculate the mean of a data set, add the data values
and then divide by the number of data values. To determine the median of a data set, order the
data from smallest to largest, and then find the middle value in the ordered data set. To find
the mode of a data set, determine the most frequently occurring data value.
LO 2: Recognize when a certain measure of center is more appropriate to
use, such as weighted mean.
The median is a better measure of the center of a data set as compared to the mean when
outliers are present. The geometric mean is used to generate the average return of an
investment over time. The weighted mean is used when each data value is assigned a certain
weighting, such as weighting of different stocks purchases in a portfolio based on purchase
price.
LO 3: Distinguish among arithmetic mean, geometric mean, and weighted
mean.
The geometric mean provides a different approach for the center of a data set as compared to
the arithmetic mean. For the arithmetic mean, calculate the sum of the data and divide by the
03/21/22 2
