CFA Practice Question

There are 434 practice questions for this study session.

CFA Practice Question

Consider the following statements:

I. The t-distribution is a symmetrical probability distribution defined by a single parameter known as the degrees of freedom.
II. When sample size is small and population variance is not known, the t-distribution is used.
III. The use of a t reliability factor is appropriate when the population variance is unknown but we have a large sample and can rely on the central limit theorem to ensure approximate normality of the distribution of the sample mean.

Which is true?
A. I and II
B. I and III
C. I, II and III
Explanation: Some facts about the t-distribution are:
  • The t-distribution is a symmetrical probability distribution defined by a single parameter known as the degrees of freedom.
  • When sample size is small and population variance is not known, the t-distribution is used if the population is normally distributed (this is unknown in this question).
  • The use of a t reliability factor is appropriate when the population variance is unknown but we have a large sample and can rely on the central limit theorem to ensure approximate normality of the distribution of the sample mean

User Contributed Comments 5

User Comment
armanaziz The two critical factors are large sample size and normality assumption.

Sample size large -> Use Z or T

Sample size small ->

Normality assumed ->
Population Variance Known -> Use Z or T
Popolation Variance Unknown -> Use T

Normality cannot be assumed ->
Nothing will work.
jpducros Has anyone managed a clever way to remember this ?
natulik1 God damn it!
Sheeb just because it failed to mention that it was "normally distributed". Brutal.
thanhb91 The way i remember it is
1) Determine if population variance is known or unknown; if known use z, unknown follow 2
2) Determine if normally distribute or non-normal
3) If normal use t for both large and small sample size; if non-normal use t for large size only (CLT assumption)
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