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NISM Certifications · NISM-Series-XV: Research Analyst · Fundamentals of Research

A researcher tests whether a company's average quarterly return differs from zero. The test produces a p-value of 0.03. Which conclusion is correct at a 5% significance level?

Reject the null hypothesis, because the p-value of 0.03 is lower than the 5% significance level. A p-value below the chosen threshold indicates the observed result would be unlikely if the null were true. It does not prove the alternative with a stated certainty.

  1. AFail to reject the null hypothesis, since 0.03 is below 0.05
  2. BReject the null hypothesis, since the p-value is less than the significance levelCorrect
  3. CAccept the alternative hypothesis as proven with 97% certainty that the return is positive
  4. DReject the null hypothesis only if the p-value exceeds 0.05

Explanation

A null hypothesis is rejected when the p-value is less than the significance level. Here 0.03 < 0.05, so the null is rejected. The 97% certainty reading is a misinterpretation of the p-value, and rejection does not depend on the p-value exceeding 0.05.

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