CHAPTER 7 - HYPOTHESIS TESTING

Question 1

Statistical Hypothesis

Answer 1

Is an assumption about a population parameter. This is a statement that cannot be accepted to be true unless proven.

Question 2

Hypothesis Testing

Answer 2

Refers to the formal procedures used by statisticians to reject or not reject the statistical hypothesis.

Question 3

Hypothesis Testing

Answer 3

Is a second form of statistical inference.

Question 4

Null Hypothesis

Answer 4

Denoted by Ho, is usually the hypothesis that sample observations result purely from chance

Question 5

Alternative Hypothesis

Answer 5

Denoted by Hi or Ha,is the hypothesis that sample observations are influenced by some non-random cause.

Question 6

The null hypothesis

Answer 6

Will always state that the parameter equals the value specified in alternative hypothesis (Hi)

Question 7

Type 1 error

Answer 7

Occurs when we reject a true null hypothesis.

Question 8

Type 2 error

Answer 8

Occurs when we don’t reject a false null hypothesis.

Question 9

Types of Alternative Hypothesis

Answer 9

1.Directional or predictive
2.Non-Directional or non-predictive

Question 10

If the alternative hypothesis contains the less-than inequality symbol (<) the hypothesis is

Answer 10

Left-Tailed test

Question 11

If the alternative hypothesis, contains the greater-than inequality symbol (>), the hypothesis test is

Answer 11

Right-Tailed test

Question 12

One-tailed test

Answer 12

A test of statistical hypothesis where the region of rejection is only one side of the sampling distribution.

Question 13

Two-tailed test

Answer 13

A test of statistical hypothesis where the region of rejection is on both side of the sampling distribution.

Question 14

Once the null and alternative hypothesis are stated, the next step is to randomly sample the population and calculate a

Answer 14

Test statistic

Question 15

If the test statistics value is inconsistent with the null hypothesis we rejected the null hypothesis and

Answer 15

Infer that the alternative hypothesis is true

Question 16

Type 1 error

Answer 16

Occurs when we reject a true null hypothesis

Question 17

Type 2 error

Answer 17

Occurs when we don’t reject a false null hypothesis.

Question 18

P-value

Answer 18

Provides measure of how much statistical evidence exists to support the alternative hypothesis. This measure can be weighed in relation to the other factors, especially the financial ones.

Question 19

P-value

Answer 19

Is a probability of observing a test statistic at least as extreme as the one computed given that the null hypothesis is true.

Question 20

If p-value is between 1% and 5%,

Answer 20

there is a strong evidence that supports the alternative hypothesis.

Question 21

If P-value is between 5% and 10%

Answer 21

There is a weak evidence to support the alternative hypothesis.

Question 22

If p-value exceeds 10%

Answer 22

There is no evidence that supports the alternative hypothesis.

Question 23

If the p-value is less that a, we judge the p-value

Answer 23

Small enough to reject the null hypothesis

Question 24

If the p-value is less than a

Answer 24

We do not reject the null hypothesis

Question 25

Steps in Hypothesis testing

Answer 25

1.Formulate the null and alternative hypothesis
2.Determine the level of significance of the study
3.Determine the critical value of the test statistics
4.Compute the value of the test statistics
5.Make decision

Question 26

Reject the null hypothesis if the absolute computed value of the test statistics is greater than the absolute critical value.

Answer 26

Otherwise, Do not reject Ho