Financial Risk Manager Part 1
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Q.3288 While performing a hypothesis test, Albert Khan is told that his analysis suffers from a Type I error. We can therefore conclude that:
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NNikitesh
A
Khan rejected the null hypothesis when it was actually false
B
Khan failed to reject the null hypothesis when it was actually false
C
Khan failed to reject the null hypothesis when it was actually true
D
Khan rejected the null hypothesis when it was actually true
Explanation:
A Type I error occurs when we reject the null hypothesis when it is actually true. This is also known as a false positive. In hypothesis testing:
- Type I error (α): Rejecting H₀ when H₀ is true
- Type II error (β): Failing to reject H₀ when H₀ is false
The correct answer is D because the question explicitly states that Albert Khan's analysis suffers from a Type I error, which means he rejected the null hypothesis when it was actually true.
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