# Type I, II Error

For a hypothesis test with a probability of a Type II error of 60% and a

probability of a Type I error of 5%, which of the following statements is most

accurate?

A. The power of the test is 40%. and there is a 5% probability that the test

statistic will exceed the critical value(s).

B. There is a 95% probability that the test statistic will be between the critical

values if this is a two-tailed test.

C. There is a 5% probability that the null hypothesis will be rejected when

actually true. and the probability of rejecting the null when it is false is

40%.

They claim that the answer is C, on the basis that in A,B the null hypothesis could be false, which would make the claims invalid in options (A,B) since the probability of rejection would be unknown.

How does this make sense? I do not get their reasoning. Is the probability of rejecting the null hypothesis already incorporated into the probabilities?

Thanks!

# Study together. Pass together.

Join the world's largest online community of CFA, CAIA and FRM candidates.

A isn’t necessarily true because the null could be true or false– the statement would need to say “assuming the null is true, there is a 5% probability…”

B isn’t necessarily true for the same reason above.

C is always true assuming the probability of each error is as described in the question– it’s definitional for the chosen significance level (alpha, P(Type I Error)) and the power of a test (1-P[Type II Error]) [P(rejecting Ho | Ho is false)]. You may see beta instead of P(Type II Error).

I don’t think this is a good question, but it is accurate. It may be helpful to review the definitions of Type I and Type II errors as well as power of a test.

α is the probability of rejecting

(i.e., the probability of a Type I error).a true null hypothesisα

the probability of rejecting the null hypothesis.is notSimplify the complicated side; don't complify the simplicated side.

Financial Exam Help 123: The place to get help for the CFA® exams

http://financialexamhelp123.com/

Studying With

So does it mean Type I error defines the significance level I need in the hypothesis test.

But it doesn’t mean the test statics will actually fall out of the confidence interval of 95% with the given mean value in the null hypothesis.

Am I right?

The

a Type I error defines the significance youprobability ofin the hypothesis test.chooseIt does mean that if and only if the distribution of the (sample) test statistics is exactly the same as the distribution you use to create the confidence interval.

Simplify the complicated side; don't complify the simplicated side.

Financial Exam Help 123: The place to get help for the CFA® exams

http://financialexamhelp123.com/

Studying With

Thank you very much.

My pleasure.

Simplify the complicated side; don't complify the simplicated side.

Financial Exam Help 123: The place to get help for the CFA® exams

http://financialexamhelp123.com/

Type I error is when you keep a manager that provides no value.

Type II error is when you fire a manager that is providing value.

Null is true, but rejected.

That’s the error for me.