# CFAI Reading 12 Question 19

The answer that I chose is A but the answer given is C. Why is it that correct? What I learnt in school is that the null hypothesis (H0) will always state that the parameter equals the value specified in the alternative hypothesis (H1)

hansen believes for each 1% increase in IPO, other variable will increase by less than 0.5% this is his h1. So h1: mu < 0.5 So h0 would be h0: mu >= 0.5

Why not H0: mu = 0.5 HA: mu<0.5? Really am quite dumbfounded by this as this was what I have learnt in school I am not entirely sure if there is an error somewhere and in the exam should something identical be asked …should I follow the answer given in the CFA book (i.e. having an inequality in the null hypothesis or?)

HydrogenRainbow Wrote: ------------------------------------------------------- > Why not H0: mu = 0.5 HA: mu<0.5? Really am quite > dumbfounded by this as this was what I have learnt > in school because H0 and H1 should cover all possible values of mu. In your example, they are only covering all mu below 0.5. What if actual mu is greater than 0.5?

maratikus Wrote: ------------------------------------------------------- > HydrogenRainbow Wrote: > -------------------------------------------------- > ----- > > Why not H0: mu = 0.5 HA: mu<0.5? Really am > quite > > dumbfounded by this as this was what I have > learnt > > in school > > because H0 and H1 should cover all possible values > of mu. In your example, they are only covering > all mu below 0.5. What if actual mu is greater > than 0.5? Serious? I really was never aware of this - that H0 and HA are supposed to cover all possible values of mu? Have always been taught to use the “=” sign in the null hypotheses, even in 1 tailed tests. eeks

Forget about believes that need be proved or disproved. One of the hypothesis is that the increase will be LESS than 0.5. To cover all possible outcomes, the other hypothesis is that the increase will be >= to 0.5 The null is the hypothesis that includes equality, either as =, as <= or as >=, therefore the null is mu >= 0.5, the alternative is mu < 0.5.

Hi Hydrogen, the key to this exam is not to fight the curriculum…whenever there’s a discrepancy between “real” way and CFAI way, the latter always wins…

Yeah certainly…I’d just go with the answer given in the CFA text man. Won’t want to lose a point because of technicalities.

Key phrase: “There’s the right way, the wrong way, and the CFA way”