- CFA Exams
- CFA Level I Exam
- Topic 1. Quantitative Methods
- Learning Module 8. Hypothesis Testing
- Subject 1. The Process of Hypothesis Testing

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**CFA Practice Question**

The purpose of a hypothesis test is to ______.

A. measure the significance of the difference between the sample mean and the population mean

B. derive the standard error of the data sample given the sample mean and the number of test observations

C. determine the appropriate value of the null hypothesis

**Explanation:**The central hypothesis of investment theory is that nondiversifiable risk is rewarded by a higher expected return. Hypothesis testing supplies probabilistic answers to such concerns as whether a certain average is just the luck of the draw. In other words, the objective is to measure the significance of the difference between the sample mean and the population mean.

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