- CFA Exams
- CFA Level I Exam
- Topic 1. Quantitative Methods
- Learning Module 8. Hypothesis Testing
- Subject 6. The Decision Rule

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**CFA Practice Question**

For the hypothesis test shown below, the decision should be to ______.

B. fail to reject H

C. reject H

A. conclude H

_{a}B. fail to reject H

_{0}C. reject H

_{0}Correct Answer: C

Because the sample data, x-bar 16.1, has a z-score of -3.71 (the test value) and this z-score is in the critical region (critical value is -2.33, the cutoff for the bottom 1% of the normal distribution), the decision is to reject H

_{0}. That is, we do not believe this sample data came from a population whose mean is 17 or more. Note that the p-value for an x-bar of 16.1 is 0+.###
**User Contributed Comments**
10

User |
Comment |
---|---|

Yurik74 |
How -2.33 is calculated??? I understand that -3.71 = (16.1-17)/(2.3/sqrt(90)) |

surjoy |
Z 0.01 is 2.33 |

JKiro |
Yurik74: critical values (rejection points) are determined by the experimenters |

VGVG |
Isn't this a one-tailed test? And for a one-tailed test, the decision rule is: Reject H0 if z > z-alpha. In this case, z-score of -3.71 can't be > -2.33 |

VGVG |
Never mind, this is a one-tailed test with: H0: u >= u0, and for this the rejection clause is: z < -z-alpha |

thekid |
PLeAse ExplAin the following: "Note- the p-value for an x-bar of 16.1 is 0+." How did they get this? What does that mean? |

bhaynes |
thekid: the smaller the p-value, the higher the chance that we are going to reject the null and accept the alternate. For the values above, we can check the z-table for our z-stat of -3.71 and see the p-value of .0001. That's pretty low. That means that we can say with a 99.99% chance, that we should reject the null. Remember......As the p-value shrinks, so does our confidence in the null. |

johntan1979 |
alpha of .01 for two-tailed is 2.58, one-tailed is 2.33 |

ldfrench |
HAS ANYONE SEEN MY DOG???? |

farhan92 |
hes on the derivatives section... |