- CFA Exams
- CFA Level I Exam
- Study Session 3. Quantitative Methods (2)
- Reading 11. Hypothesis Testing
- Subject 6. The Decision Rule

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**CFA Practice Question**

A consumer group wants to prove that average hospital costs are more than $931 per day. The group randomly samples 60 accounts and finds a sample mean of $950. The hypothesis test is at an a-level of 5% and assumes a σ of $50. With a test value of 2.94 standard deviations and a critical value of 1.645, the decision should be to ______.

A. fail to reject H

_{0}: μ <= 931B. accept H

_{a}: μ > 931C. reject H

_{0}: μ <= 931**Explanation:**Because the test value, 2.94, is in the critical/rejection region, the test value is 1.645 and the decision is to reject H

_{0}: μ <= 931. At an a-level of 5%, there is no reason to believe that the sample mean, x-bar = 950, came from a population whose mean is 931 or less.

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**User Contributed Comments**
7

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

haarlemmer |
I think it is better to get the wording clear. When 'decision' used, it is meant to make your decision to reject the null hypothesis or not. When 'conclusion' used, it is then meant to make your decision whether the statement of the null hypothesis or alternative hypothesis should be used. 'Conclusion' to certain degree means to go a step further, I think. |

Locke |
Who cares, haarlemmer. The textbook says decision so we just use decision throughout the exam. |

iceluke |
there is no "accept", just "fail to reject" or "reject" |

tabulator |
One cannot "accept" H(a); only reject or fail to reject H(0). |

EtnicPlaymaker |
You forget about Type II error. Rejection of Ho is not equal to acception of H1. |

AndyBear |
Are these not the same answers? If you reject the Null (reject H0: u <= 931), You accept the Alternative. (accept Ha: u > 931) |

ColonelCFA |
B and C are technically saying the same answer from different perspectives. But on the CFA exam questions are ALWAYS answered in terms of accepting or rejecting the NULL hypothesis NEVER the alternative. |