honeycfa

Given the following hypothesis:

• The null hypothesis is H₀ : μ = 5
• The alternative is H₁ : μ ≠ 5
• The mean of a sample of 17 is 7
• The population standard deviation is 2.0

What is the calculated z-statistic?

A) 4.00.

B) 4.12.

C) 8.00.

---

The z-statistic is calculated by subtracting the hypothesized parameter from the parameter that has been estimated and dividing the difference by the standard error of the sample statistic. Here, the test statistic = (sample mean ? hypothesized mean) / (population standard deviation / (sample size)^1/2 = (X ? μ) / (σ / n^1/2) = (7 ? 5) / (2 / 17^1/2) = (2) / (2 / 4.1231) = 4.12.

---

honeycfa

Which of the following statements least describes the procedure for testing a hypothesis?

A) Develop a hypothesis, compute the test statistic, and make a decision.

B) Select the level of significance, formulate the decision rule, and make a decision.

C) Compute the sample value of the test statistic, set up a rejection (critical) region, and make a decision.

---

Depending upon the author there can be as many as seven steps in hypothesis testing which are:

1. Stating the hypotheses.
2. Identifying the test statistic and its probability distribution.
3. Specifying the significance level.
4. Stating the decision rule.
5. Collecting the data and performing the calculations.
6. Making the statistical decision.
7. Making the economic or investment decision.

honeycfa

Which of the following is the correct sequence of events for testing a hypothesis?

A) State the hypothesis, select the level of significance, compute the test statistic, formulate the decision rule, and make a decision.

B) State the hypothesis, formulate the decision rule, select the level of significance, compute the test statistic, and make a decision.

C) State the hypothesis, select the level of significance, formulate the decision rule, compute the test statistic, and make a decision.

---

Depending upon the author there can be as many as seven steps in hypothesis testing which are:

1. Stating the hypotheses.
2. Identifying the test statistic and its probability distribution.
3. Specifying the significance level.
4. Stating the decision rule.
5. Collecting the data and performing the calculations.
6. Making the statistical decision.
7. Making the economic or investment decision.

honeycfa

Which of the following statements about hypothesis testing is most accurate?

A) The probability of a Type I error is equal to the significance level of the test.

B) If you can disprove the null hypothesis, then you have proven the alternative hypothesis.

C) The power of a test is one minus the probability of a Type I error.

---

The probability of getting a test statistic outside the critical value(s) when the null is ture is the level of significance and is the probability of a Type I error. The power of a test is 1 minus the probability of a Type II error. Hypothesis testing does not prove a hypothesis, we either reject the null or fail to reject it.

honeycfa

An analyst conducts a two-tailed z-test to determine if small cap returns are significantly different from 10%. The sample size was 200. The computed z-statistic is 2.3. Using a 5% level of significance, which statement is most accurate?

A) You cannot determine what to do with the information given.

B) Reject the null hypothesis and conclude that small cap returns are significantly different from 10%.

C) Fail to reject the null hypothesis and conclude that small cap returns are close enough to 10% that we cannot say they are significantly different from 10%.

---

At the 5% level of significance the critical z-statistic for a two-tailed test is 1.96 (assuming a large sample size). The null hypothesis is H₀: x = 10%. The alternative hypothesis is H_A: x ≠ 10%. Because the computed z-statistic is greater than the critical z-statistic (2.33 > 1.96), we reject the null hypothesis and we conclude that small cap returns are significantly different than 10%.

honeycfa

Susan Bellows is comparing the return on equity for two industries. She is convinced that the return on equity for the discount retail industry (DR) is greater than that of the luxury retail (LR) industry. What are the hypotheses for a test of her comparison of return on equity?

A) H0: μDR ≤ μLR versus Ha: μDR > μLR.

B) H0: μDR = μLR versus Ha: μDR ≠ μLR.

C) H0: μDR = μLR versus Ha: μDR < μLR.

---

The alternative hypothesis is determined by the theory or the belief. The researcher specifies the null as the hypothesis that she wishes to reject (in favor of the alternative). Note that this is a one-sided alternative because of the “greater than” belief.

honeycfa

In the process of hypothesis testing, what is the proper order for these steps?

A) State the hypotheses. Specify the level of significance. Collect the sample and calculate the test statistics. Make a decision.

B) Collect the sample and calculate the sample statistics. State the hypotheses. Specify the level of significance. Make a decision.

C) Specify the level of significance. State the hypotheses. Make a decision. Collect the sample and calculate the sample statistics.

---

The hypotheses must be established first. Then the test statistic is chosen and the level of significance is determined. Following these steps, the sample is collected, the test statistic is calculated, and the decision is made.

honeycfa

The first step in the process of hypothesis testing is:

A) selecting the test statistic.

B) the collection of the sample.

C) to state the hypotheses.

---

The researcher must state the hypotheses prior to the collection and analysis of the data. More importantly, it is necessary to know the hypotheses before selecting the appropriate test statistic.