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Chartered Financial Analyst Level 1

Chartered Financial Analyst Level 1

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In a parametric test examining the correlation between two variables, given a sample size of 51 and a sample correlation of 0.6, the t-statistic is most likely:

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Explanation:

Explanation

Correct Answer: B (5.25)

For a parametric test of correlation, assuming the variables are normally distributed, the t-statistic is calculated as:

t=rn−21−r2t = \frac{r \sqrt{n - 2}}{\sqrt{1 - r^2}}t=1−r2​rn−2​​

Where:

  • rrr is the sample correlation coefficient (0.6).
  • nnn is the sample size (51).

Substituting the values:

t=0.6×51−21−0.62=0.6×71−0.36=4.20.8=5.25t = \frac{0.6 \times \sqrt{51 - 2}}{\sqrt{1 - 0.6^2}} = \frac{0.6 \times 7}{\sqrt{1 - 0.36}} = \frac{4.2}{0.8} = 5.25t=1−0.62​0.6×51−2​​=1−0.36​0.6×7​=0.84.2​=5.25

Why Not A or C?

  • A (0.07): This incorrect result occurs if the numerator and denominator are swapped in the formula.
  • C (6.64): This arises if the correlation coefficient rrr is not squared in the denominator, leading to an incorrect calculation.
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