### CFA Practice Question

A portfolio manager pursues an active strategy. Over a period of 12 months, she achieves a return of 0.95% per month. The risk of her portfolio implies her return should be 0.45% per month. The sample standard deviation is 0.64%. The Null Hypothesis is that the portfolio manager earns a return equal to or lower than 0.45% per month. (That is, alpha is zero or negative). You are provided the following values for t-distribution and Z-distribution.

t-distributed with 12 dof test statistic for 1% one-tailed = 2.681
t-distributed with 11 dof test statistic for 1% one-tailed = 2.718
t-distributed with 12 dof test statistic for 1% two-tailed = 3.054

t-distributed with 11 dof test statistic for 1% two-tailed = 3.106

Can the Null Hypothesis be rejected at the 99% level of significance test?
A. Yes
B. No
C. Insufficient information.
Explanation: This is a one-tailed test. The test statistic = (0.95% - 0.45%)/(0.64%/12^0.5) = 2.7063. This is smaller than 2.718, so we fail to reject the Null.