Page 12 - FINAL CFA I SLIDES JUNE 2019 DAY 4
P. 12
Session Unit 3:
LOS 12.c: Explain a test 12. Hypothesis Testing
statistic, Type I and Type II
errors, a significance level,
and how significance
levels are used in
hypothesis testing, p. 280
Type I Error:
the Rejection of the null hypothesis when it is actually True.
Noticed, the word
Type II Error: ACCEPT
the Failure To Reject the null hypothesis when it is actually False. is not used?
The significance level, α, is the probability of making a Type I e.g. α = 5% or 0.05
means there is a 5% chance of rejecting a true null hypothesis.
Can you conduct hypothesis testing without specifying α? Why/How/Why Not?
Otherwise you cannot identify the critical values (No Decision Rule parameters)
needed to evaluate the test statistic! Meaning?
