Financial Risk Manager Part 1
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An investment firm intends to carry out a test to determine whether bonuses have any significant effect on job performance. The head of the human resource department develops the following sets of possible hypotheses.
I. H₀: Bonuses do not have any effect on job performance
H₁: Bonuses improve job performance
II. H₀: Bonuses do not have any effect on job performance
H₁: Bonuses reduce job performance
III. H₀: Bonuses do not have any effect on job performance
H₁: Bonuses affect job performance
IV. H₀: Bonuses have no effect on job performance
H₁: Bonuses improve job performance
Which of the above pairs of hypotheses implies a two-sided test?
Other
Community
NNikitesh
A
I
B
II
C
III
D
IV
Explanation:
The correct answer is C (III).
Explanation:
A two-sided test (also called a two-tailed test) examines whether there is a significant difference in either direction from the null hypothesis. The key distinction between one-sided and two-sided tests lies in the alternative hypothesis:
- One-sided tests look for changes in only one specific direction (either increase or decrease)
- Two-sided tests look for changes in either direction (both increase and decrease)
Analyzing each option:
- Option I: H₁ states "Bonuses improve job performance" - This is a one-sided test looking only for improvement.
- Option II: H₁ states "Bonuses reduce job performance" - This is a one-sided test looking only for reduction.
- Option III: H₁ states "Bonuses affect job performance" - The word "affect" is non-directional, meaning it could be either improvement or reduction. This implies a two-sided test.
- Option IV: H₁ states "Bonuses improve job performance" - This is a one-sided test looking only for improvement.
The alternative hypothesis in set III uses the word "affect," which leaves open the possibility of either an increase or a decrease in job performance, making it the only two-sided test among the options.
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