CFA Practice Question

CFA Practice Question

An analyst wishes to determine whether a new component performs better than an old component. The test is to be designed to favor the old component. (That is, the new component will be superior only if the weight of the statistical evidence is in its favor.)
A. The Null Hypothesis is that the frequency of breakdown of the old component is lower and the test will be one-tailed.
B. The Null Hypothesis is that the frequency of breakdown of the new component is lower and the test will be one-tailed.
C. The Null Hypothesis is that the frequency of breakdown of the new component is lower and the test will be two-tailed.
Explanation: To favor the old component, the Null (accepted unless evidence makes it possible to reject) should be that the old component is superior. The rejection region only consists of the evidence showing the new component is superior (rather than both tails showing the new component is different), so the test should be one-tailed.

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