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CFA Level I · CFA Level I Exam · Estimation and Hypothesis Testing

A test of whether the mean returns of two independent portfolios differ gives a p-value of 0.20. The most appropriate interpretation at the 5% significance level is that:

The sample provides insufficient evidence to conclude the mean returns differ. A p-value of 0.20 is above 5%, so the null is not rejected, but that does not prove the means are equal, and the p-value is not the probability of equality.

  1. Athe two portfolios are shown to have identical mean returns
  2. Bthe sample provides insufficient evidence to conclude the mean returns differCorrect
  3. Cthe probability that the mean returns are equal is 20%

Explanation

A p-value of 0.20 exceeds 0.05, so the null of equal means is not rejected. Failing to reject does not prove the null; it indicates only that evidence is insufficient. The p-value is also not the probability that the null is true.

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