# Schweser: Assigned Reading #11 - Hypothesis Testing

Hello Everybody,

I was hoping somebody could help me. I’m ASSUMING copying information out of the Schweser material is prohibited for obvious reasons. So, can somebody help me with the calculation on Page 313? I don’t understand the calculation for the test statistic - how come it’s 0.0025 / (250)^0.5? Then, it’s 0.0001/0.000158 = 6.33?

Any help is appreciated Thanks

HB

The first part is calculating the standard error which in this instance is the sample standard deviation / square root of the sample size. Raising to the power of 0.5 is the same as taking the square root of a number.

The 2nd part is calculating the test stat which is the mean of 0.1% over the standard error figure calculated in the first stage i.e. 0.000158.

Hope that helps.

I understand that, I just don’t understand the numbers used.

Why do they use 0.0025 - shouldn’t it be 0.25?

Why do they use 0.001 - shouldn’t it be 0.1?

Everything is shifted over two decimal places.

Calculating the Standard Error is easy, I just don’t understand why the decimal points are shifted in this example.

Thoughts?

Yes, that would make sense but…

n = 250 days

Mean Daily Return is = 0.10

Daily Standard Deviation = 0.25

So why would it be per 100?

I havent’ done the Concept Checkers yet, so I’ll do those and see how they calculate it there.

I would look at the units of measurement on the return (should be percent). Percent makes sense in this case, since it is a return, and the magnitude of the return would seem better as 0.1% per day, rather than 10% per day.

My best guess (don’t have the book) is that the units of measurement are percent (but the book hasn’t made that clear), so 0.10 is 0.10% (0.001) and 0.25 is 0.25% (0.0025).

That’s exactly right.

Thanks guys, I’ll take a look at this tonight! Glad to help! Let us know if there’s any other questions you’d like to ask.

Thanks @tickersu - appreciate it.

I just need to wrap up Quants!!