I don’t get the Null Hypothesis solution in Example 7. In the problem, it stated that “You now want to test a claim that the particular investment discipline followed by Sendar result in a standard deviation of monthly return of LESS THAN 4 percent”. Solution 1 preseted the null hypothesis as variance >=16 and alternative hypothesis of variance < 16. Shouldn’t it be the opposite? Null hypothesis of variance < 16 and alternative hypothesis of variance >=16? I did the example with closed book before I looked at the answers. Obviously my rejection region was wrong because of the hypothesis formulation. But why?

One of the golden rules to remember esp. in Hyp testing is: Claims are always the Alternate Hypothesis. <>> And the opposite of that is the Null Hypothesis. So the setup in the problem.

I see. Thanks. I wish I’ve seen this somewhere in the text.

I don’t think so. If i’m not mistaken, the alternative can not take an equal sign. If the test was if standard deviation equals 4. then Ho: variance = 16 Ha: variance != 16 The claim, therefore, is not the alternative.