- 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**

For the hypothesis test shown at the right, the decision should be to ______.

A. fail to reject H

_{0}B. reject H

_{0}C. accept H

_{0}**Explanation:**Because the sample data, x-bar 165, has a z-score of 2.5 (the test value) and this z-score is in the critical region (critical value is 1.645, the cutoff for the top 5% of the normal distribution), the decision is to reject H

_{0}. That is, we do not believe this sample data came from a population whose mean is 160 or less. Note that the p-value for an x-bar of 165 is 0.6%.

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**User Contributed Comments**
3

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

Bibhu |
I think easier option would be if test value > critical value reject H0. |

jpducros |
Bibhu, I think your reasoning won't always work. Here it works because the alternative hypothesis is "> X" and we also have here Test value > Critical value. Have you had the alternative hypothesis "<X", you would have needed a Test value<Critical value to be able to reject Ho. Someone can confirm ? |

kindal |
This is correct |