- CFA Exams
- CFA Level I Exam
- Study Session 3. Quantitative Methods (2)
- Reading 11. Hypothesis Testing
- Subject 8. Hypothesis Tests Concerning the Mean: T-Test vs. Z-Test

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**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.

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**User Contributed Comments**
2

User |
Comment |
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kamil77 |
Surely we make a silent assumption here that the return distribution is normal? |

rtremblay |
3 yrs = 36 months = >30 n = normal distribution |