- CFA Exams
- CFA Level I Exam
- Topic 1. Quantitative Methods
- Learning Module 8. Hypothesis Testing
- Subject 3. Test Statistic and Significance Level

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**CFA Practice Question**

You have set up a test of a suitably phrased null hypothesis. After analyzing the statistical underpinnings of the test and the stringency requirements you have imposed, you have determined that the probability of rejecting the null hypothesis equals 30%. The probability that you will reject the null hypothesis when it is true is equal to 13% and the probability that you will reject the null hypothesis when it is false is equal to 17%. The significance level of your test equals ______.

A. 30%

B. 13%

C. 17%

**Explanation:**The significance level equals the probability of making a Type I error, which is the error of rejecting the null hypothesis when it is, in fact, true. In this case, this probability has been given as equal to 13%.

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