- CFA Exams
- CFA Level I Exam
- Study Session 3. Quantitative Methods (2)
- Reading 11. Hypothesis Testing
- Subject 4. Type I and Type II Errors in Hypothesis Testing

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**CFA Practice Question**

For the hypothesis test below, where the decision is whether to reject H

B. alpha

C. Type II

_{0}, then a ______ error could have occurred.

A. Type I

B. alpha

C. Type II

Correct Answer: A

When the decision is whether to reject H

_{0}, then a Type I error can occur (rejecting H_{0}when H_{0}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 |