Developing the null and alternative hypotheses, Type I and II errors, interpreti
ID: 3231918 • Letter: D
Question
Developing the null and alternative hypotheses, Type I and II errors, interpreting p- values A finance professor conducts a statistical study to test his hunch mean return on common-stock portfolios is that the lower with a trading strategy than with a buy-and-hold strategy. The professor formulates the null hypothesis as: The mean return on common-stock portfolios is the same with a trading strategy as with a buy-and-hold strategy. The mean return on common-stock portfolios is lower with a trading strategy than with a buy and-hold strategy. The mean return on common stock portfolios is higher with a trading strategy than with a buy-and-hold strategy. The mean return on common-stock portfolios is higher or the same with a trading strategy opposed to a buy-and-hold strategy. The professor commits a Type I error if he concludes that: The mean return is reduced by trading when it actually is not. The mean return is not reduced by trading when it actually is. Suppose that the professor conducts the hypothesis test and uses the value of the test statistic compute a p-value for the test. The p-value is 0.04. Using the guidelines suggested by statisticians for interpreting small p-values, the sample data provide evidence against the null hypothesis.Explanation / Answer
The given claim is the mean return on common stock portfolios is lower with
the professor formulates the null hypothesis is,
The null hypothesis as follows:
Answer: D
That is, the mean return on common stock portfolios is higher or the same with a trading strategy opposed to buy-and –hold strategy.
The Type-I error as follows:
Answer: B
Thar is, the mean return is not reduced by trading when it actually is.
Assume that the level of significance is 0.05
The professor conducts the hypothesis test.
The p-value is 0.04
Therefore, the sample data provides strong evidence against the Null hypothesis.
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