- CFA Exams
- CFA Level I Exam
- Study Session 3. Quantitative Methods (2)
- Reading 11. Hypothesis Testing
- Subject 3. Test Statistic and Significance Level

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**CFA Practice Question**

To test H(0): μ = 20 vs. H(A): μ ≠ 20, a sample of 400 will be taken from a large population whose standard deviation is 5. H(0) will be rejected if XBAR ≥ 20.5 or XBAR ≤ 19.5. The level of significance of this test is approximately ______.

A. 0.05

B. 0.02

C. 0.10

**Explanation:**Half Confidence Interval = Z * S/SQRT(N)

.5 = Z * 5/20

2 = Z

Area beyond Z = .023

So, for both tails, the significance level used = .023 + .023 = .046.

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**User Contributed Comments**
4

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

mulira |
where is the 0.023 from? |

Sundevil |
using the formula xbar +(-) reliability factor * standard deviation / sq rt n 20 + Zscore * (5 / 20) = 20.5 solve for Z .023 is from the z table |

chamad |
The Z table gives you 0.9772. You're looking for the area below this value: 1-0.9772=0.023 |

1a2a |
You will not have a Z table on the test and none of the questions will require you to use a Z table. Nonetheless, they do include it in the books. |