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Basic Question 7 of 8
An analyst compiled the following information relating to EPS forecasts. The analyst wants to forecast quality. The test used to forecast quality is the zero-mean test, which states that optimal forecasts should have a mean forecasting error of 0.
Mean forecast error: 0.07
Standard deviation of forecast error: 0.2
B. we have committed a Type I error.
C. we accept the null.
Number of forecasts: 100
Mean forecast error: 0.07
Standard deviation of forecast error: 0.2
Using a z-test, at the 0.05 level of significance ______
A. we reject the null.
B. we have committed a Type I error.
C. we accept the null.
User Contributed Comments 9
| User | Comment |
|---|---|
| tenny45 | Didn't question #4 just mention that at the 0.05 significance level, the critical value is 1.645 (instead of 1.96)? |
| nick | q4 is 10% confidence interval, but 5% for the bottom part. |
| awellman | 1.645 is the one-tailed critical value. 1.96 is the two-tailed critical value. |
| sapphire | Does anybody know how to get 1.96 besides memorising it? Thanks a lot |
| StanleyMo | is that the = and < > can affect the 5% or 10% level of significance? |
| thekid | Sapphire... we know: alpha=5% and its a one sided test. Therefore, looking at the z tables we look for the value 5% (0.05)... and we find that z -1.64 has a value of 5.05% (0.0505) and z -1.65 has a value of 4.95% (0.0495). Therefore, a z of 1.645 would give us a value of 5%. If this was a two sided test with the same alpha=5%, Then you would look at the z table for a zscore with a value of 0.025 (5%/2) and if you look at the the z -1.96 it has a value of 0.025 (the value we are looking for). (Since its the same on the other tail z +1.96 = z -1.96) Summary: Given alpha=5%, with a 1sided test: 5% on EACH SIDE therefore 90% = Zscore of 1.645, with a 2sided test: (2.5%) 5%/2 on each side therefore 95% = Zscore of 1.96 |
| johntan1979 | sapphire, you can write it on a piece of paper and bring it into the exam. |
| gill15 | thekid --- this is a TWO SIDED test.....thats why the answer has 1.96 in it.. optimal forecating is u = 0 Ha u does NOT equal 0 ---- two sided test |
| sumeetb | Yes, gill15, Its a 2-tail test. My doubt is: then, do we take significance level as 10% or keep it 5? Pls help |
I used your notes and passed ... highly recommended!
Lauren
Learning Outcome Statements
construct hypothesis tests and determine their statistical significance, the associated Type I and Type II errors, and power of the test given a significance level
CFA® 2025 Level I Curriculum, Volume 1, Module 8.