- 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.
The rejection point(s) at the 0.10 level of significance is (are) ______.
A. reject when t < 1.690 or t < -1.690
B. reject when t < 1.690 or t > -1.690
C. reject when t > 1.690 or t < -1.690
Explanation: In this case, we look at p = 0.05 because the significance level given is 0.1 and 35 degrees of freedom (36-1). The value read from the table is 1.690; this determines the rejection point(s).
User Contributed Comments 9
| User | Comment |
|---|---|
| danlan | Reject when it is far from 0, so it's the only choice. |
| Xocrevilo | Danlan, that's not quite right. No calculation needed on this one. From the LOS: "Reject the null if the t-statistic is greater than the upper rejection point or less than the lower rejection point." |
| mishis | Why wasn't the z-value used instead since standard deviation is known, and n=36? I am guessing it could be used as well but t statistic is more conservative...? |
| StanleyMo | the SD for sample only? we need population SD |
| homersimpson | Tricky! |
| prtwf | this question is messed up... not z because the sample is not large or the population variance normal/known not t test because pop not normal or approx normal nor sample size large... |
| prtwf | so if a population is normal is the variance of that population also normal??? the LOS is also messed up |
| alles | Isn't this a one-tailed test? The alternative hypothesis is Ha: Mu > 2.5%. So at the 0.1 level of significance the we look at p=0.1 and 35 degrees of freedom. The critical t-value is 1.31. |
| CJHughes | Look at Signs "<>". C is only correct answe |