FRM Part I · FRM Exam Part I · Hypothesis Testing
A risk manager tests whether a trading desk's mean daily P&L is zero using a two-sided z-test. The test statistic is 1.75. Using the standard normal distribution (N(1.75) = 0.9599), what is the p-value?
The two-sided p-value is 0.0802. It equals twice the upper-tail probability beyond 1.75, which is 2 × (1 − 0.9599). The figure 0.0401 is only the one-tail probability and ignores the other tail.
- A0.0401
- B0.0802Correct
- C0.9599
- D0.1598
Explanation
For a two-sided test, p = 2 × (1 − N(1.75)) = 2 × (1 − 0.9599) = 2 × 0.0401 = 0.0802. 0.0401 is the one-sided value, a missed doubling.
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