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.

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.