- CFA Exams
- CFA Level I Exam
- Topic 1. Quantitative Methods
- Learning Module 8. Hypothesis Testing
- Subject 4. Type I and Type II Errors in Hypothesis Testing
CFA Practice Question
For the hypothesis test below, where the decision is whether to reject H0, then a ______ error could have occurred.
B. alpha
C. Type II
A. Type I
B. alpha
C. Type II
Correct Answer: A
When the decision is whether to reject H0, then a Type I error can occur (rejecting H0 when H0 is in fact true). The probability of a Type I error is the a-level. Essentially, a Type I error says that the random sample was due to chance and not an underlying change in the null hypothesis.
User Contributed Comments 3
| User | Comment |
|---|---|
| euniceyew | how to know is type 1? any calculation required? can anyone explain further? |
| SuperKnight | You know its type 1 because a decision to reject the null hypothesis has been made, the other (Type II error) occurs when you fail to reject the null hypothesis. Either decision, rejecting or failing to reject the null hypothesis will always leave you open to one of the errors. |
| bhaynes | If we ever reject the Null, then there is a possible Type I error. Not rejecting = possible Type II error |