# Hypothesis Testing

You are analyzing Tempor Equity Fund, a mid-cap growth fund that has been in existence for 2 years. Over this period, it has achieved a mean monthly return of 1.7% with a sample standard deviation of monthly returns of 4.2%. Given its level of systematic risk, this mutual fund was expected to have earned a 2.0% mean monthly return over that time period. You wish to test whether the actual results are consistent with an underlying or population mean monthly return of 2.0%. The appropriate hypothesis test is: A. H0: u ≤ 2.0 HA: u > 2.0 B. H0: u ≥ 2.0 HA: u < 2.0 C. H0: u = 2.0 HA: u ≠ 2.0 D. H0: u ≠ 2.0 HA: u = 2.0

D.

I’d say H0: u =2 Ha: u < 2

sry i think the codes are messed up - let me retype the selections in word format: A. H0: u less than or greater than 2.0 HA: u greater than 2.0 B. H0: u greater than or equal to 2.0 HA: u less than 2.0 C. H0: u equals to 2.0 HA: u does NOT equal to 2.0 D. H0: u does NOT equal to 2.0 HA: u equals to zero

B is what I say.

It’s pretty straigtforward. Two tail test. Got to be D.

D is right… wats the right ans?

Why do you do two tailed test? Would you be worried if returns was greater than 2? not really.

I agree with hopetobeat that answer should be D (as this is indeed is a two tailed test). however the answer book said is C , which makes no sense to me. You are testing to see if your calculated return of 1.7% is consistent (keyword) with the mean return of 2.0, so you are testing to see if u = 2.0, which means the null has to be u not equal to 2.0 . Is there any other possible chances that it would be C?

I understand what you mean, but I don’t think test writer would think in that way. So what’s the answer?

even if you decide to do two tailed test it’d be C. D is definitely WRONG!! cuz it says Ha: = 2.0 alternative hypothesis never equals anything (in 99% of the cases)

Oh, yes, this might be the point. Brain washer!

toniwestern Wrote: ------------------------------------------------------- > I agree with hopetobeat that answer should be D > (as this is indeed is a two tailed test). however > the answer book said is C , which makes no sense > to me. > > You are testing to see if your calculated return > of 1.7% is consistent (keyword) with the mean > return of 2.0, so you are testing to see if u = > 2.0, which means the null has to be u not equal to > 2.0 . Is there any other possible chances that it > would be C? Whaa? You can’t do a hypothesis test with HA: mu = 2.0. How are you ever going to reject the idea that mu <> 2 with certainty in favor of mu = 2? HA always looks like mu > [blah] or mu < [blah] or mu <> [blah]. Answer clearly c.

kindly noted - thanks!