FRM Part I · FRM Exam Part I · Hypothesis Testing
Which sequence correctly lists the steps of the standard hypothesis testing procedure?
The standard procedure is to state the null and alternative hypotheses, choose the significance level, compute the test statistic from the sample, compare it with the critical value or the p-value with the significance level, and then decide whether to reject the null.
- AState H0 and H1, choose the significance level, compute the test statistic, compare it with the critical value or p-value, and make a decisionCorrect
- BCompute the test statistic, state H0 and H1, compare it with the sample mean, and choose the significance level
- CChoose the p-value, state H1 only, compute the confidence interval, and accept H0
- DCollect data, set H1 equal to the sample result, compute the test statistic, and reject H0
Explanation
The hypotheses and significance level are set before the data are used to compute the test statistic. The statistic is then compared with the critical value (or p-value with alpha), leading to a decision. Defining hypotheses from the sample result invalidates the test.
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