CFA Practice Question

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CFA Practice Question

Armando Delrio, a quantitative analyst with Brown Brothers Brokerage, has been instructed to create a regression analysis comparing the relationship between same store sales figures for a batch of retail stocks and marketing expenses for the same series of stocks. In order to adhere to the traditional seven-step method of hypothesis testing, Armando should begin his analysis by performing which of the following actions? Choose the best answer.
A. collecting the data
B. formulating the hypothesis
C. identifying the test statistic
Explanation: Hypothesis testing involves a series of seven explicit steps:

Step 1: Formulating and stating the hypothesis
Step 2: Identifying the appropriate test statistic and its probability distribution
Step 3: Specifying the significance level
Step 4: Stating the decision rule
Step 5: Collecting the data and performing the necessary calculations
Step 6: Making the statistical decision
Step 7: Making the economic/investment decision.

In this example, Armando Delrio, a quantitative analyst, has been instructed to perform a regression analysis in which a hypothesis is tested. The first step in this process is the formulation of the hypothesis.

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