Formulating null and alternative hypotheses and identifying Type I and II errors
ID: 3182171 • Letter: F
Question
Formulating null and alternative hypotheses and identifying Type I and II errors A finance professor conducts a statistical study to test his hunch that the mean return on common-stock portfolios is lower with an active trading strategy than with a more passive buy-and-hold strategy. Formulate the null and alternative hypotheses for the test conducted by the professor. For each statement in the following table, click the correct radio button to indicate whether the statement is the null hypothesis, the alternative hypothesis, or neither. A Type I error is committed if the professor _____ that the mean return is reduced by trading, when it actually _____ by trading. A Type II error is committed if the professor _____ it actually by trading, that the mean return is reduced by trading, when it actually ____ by trading.Explanation / Answer
Answers are -
(1) Null hypothesis
(2) Alternative strategy
(3) neither
(4) neither
Type 1 error is committed if the professor accepts that the men return is reduced by trading, when it is actually increased by trading.
Type 2 error is commited if the professor rejects that the men return is reduced by trading, when it is actually decreased by trading.