Page 13 - FINAL CFA I SLIDES JUNE 2019 DAY 4

LOS 12.d: Explain a decision rule, the POT, Session Unit 3:
and the relation between CI and HT, p. 281
12. Hypothesis Testing

Key observations, p.282

Say, lets reduce SL!
Sample size and the choice of SL {p (Type I Error)}
determines p(Type II Error) and determines POT.

Meaning what?

+SL = + p of Rejecting a True Ho = + p (Type 1)
Same as reducing p (type II)

-SL = + p of Failing to Reject False Ho = + p (Type II) = - POT! For a given sample size,
For a given SL, we can - p (Type II) and + POT How do we + POT?
ONLY by increasing sample size!

- P (Reject) when True = - p (Type 1) - P (Reject) when True = - p (Type 1)