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

An analyst wants to test whether the mean monthly return of a fund differs from zero, using 36 monthly observations. The population variance is unknown and the returns are approximately normally distributed. The test statistic most appropriate for this test is a:

A t-statistic with 35 degrees of freedom is most appropriate. The test concerns a single population mean, the population variance is unknown, and returns are approximately normal, so the sample standard deviation is used and degrees of freedom equal n minus 1, or 35.

  1. Achi-square statistic with 35 degrees of freedom
  2. Bt-statistic with 35 degrees of freedomCorrect
  3. CF-statistic with 35 and 36 degrees of freedom

Explanation

Testing a single mean with an unknown population variance and approximately normal data uses a t-test with n - 1 = 35 degrees of freedom. The chi-square statistic is used for a single variance, and the F-statistic compares two variances.

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