Skip to content

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

Which of the following is the most likely reason an analyst would choose a nonparametric test rather than a parametric test?

Data given as ranks rather than measured values most likely call for a nonparametric test. Ranks are ordinal and do not support means and variances, so parametric tests do not apply. Large samples and known variances generally support parametric tests instead.

  1. AThe sample size is very large
  2. BThe data are given as ranks rather than as measured valuesCorrect
  3. CThe population variance is known

Explanation

Ranked or ordinal data do not support parameters such as the mean and variance, so rank-based nonparametric tests such as the Spearman rank correlation are used. A large sample or known variance typically favors parametric methods, which are valid under those conditions.

Did you get it right without looking?

One question tells you little. A timed set on Estimation and Hypothesis Testing shows your real accuracy, how long you take and where you lose marks.

Practise Estimation and Hypothesis TestingFree diagnostic mock

More Estimation and Hypothesis Testing questions