- 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.

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).

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**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 |