- CFA Exams
- CFA Level I Exam
- Topic 1. Quantitative Methods
- Learning Module 8. Hypothesis Testing
- Subject 7. Test of a Single Mean
CFA Practice Question
Consider the following information about a fund. The fund has been in existence for 3 years. Over this period it has achieved a mean monthly return of 3% with a sample standard deviation of monthly returns of 5%. It was expected to earn a 2.5% mean monthly return over the 3-year period.
Which test statistic do we use for conducting a test of the hypotheses?
A. chi-square test with 35 degrees of freedom
B. z-test with 36 degrees of freedom
C. t-test with 35 degrees of freedom
Explanation: We would use a t-test because the population variance is not known. The degrees of freedom is always n - 1, which, in this case, is 36 months - 1 = 35.
User Contributed Comments 2
| User | Comment |
|---|---|
| kamil77 | Surely we make a silent assumption here that the return distribution is normal? |
| rtremblay | 3 yrs = 36 months = >30 n = normal distribution |