Page 20 - FINAL CFA I SLIDES JUNE 2019 DAY 4

Why can’t we just 2.49 is for a sample Session Unit 3:
compare 2.49 and 2.5 directly? and there is SE? Yes? 12. Hypothesis Testing

Example, o.287 : z vs t test: Which way? When your company’s ‘desk cutting’ machine is working properly, the mean
length of desks is 2.5 inches. However, from time to time the machine gets out of alignment and produces desks that are
either too long or too short. When this happens, production is stopped and the machine is adjusted. To check the
machine, the quality control department takes a sample of desks each day. Today, a random sample of 49 desks showed
a mean length of 2.49 inches. The population SD is known to be 0.021 inches. At 5% SL, should the machine be shut

down?

The z-Test | The t-Test

Let μ = mean length of all desks (population)

x = the corresponding mean for the sample.

Reject Ho if
t0.05/2 > 2.010

Use population SD
since we don’t have
Compute z/t sample’s?

So same result!
Z/t: Sufficient evidence to reject Ho

Machine is out of adjustment and should be shut down for repair.