FRM Part I · FRM Exam Part I · Hypothesis Testing
A risk analyst collects 64 monthly returns on a fund. The sample mean is 0.80% and the sample standard deviation is 4.00%. What is the standard error of the sample mean?
The standard error of the sample mean is 0.50%. It equals the sample standard deviation of 4.00% divided by the square root of the sample size, which is 8. Dividing by 64 itself would wrongly shrink the figure to 0.0625%.
- A0.50%Correct
- B0.0625%
- C4.00%
- D0.125%
Explanation
Standard error = s/sqrt(n) = 4.00%/sqrt(64) = 4.00%/8 = 0.50%. Dividing by n instead of sqrt(n) gives 0.0625%, which is wrong because the standard error scales with the square root of the sample size.
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