Financial Risk Manager Part 1
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Hilda believes that the average return on equity in the consumer durables industry is greater than 8%. What are the null (H₀) and the alternative (H₁) hypotheses for this study?
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NNikitesh
A
H₀: M = 0.8 versus H₁: M ≠ 0.8
B
H₀: M ≥ 0.8 versus H₁: M < 0.8
C
H₀: M ≤ 0.8 versus H₁: M > 0.8
D
H₀: M < 0.8 versus H₁: M ≥ 0.8
Explanation:
This is a one-sided alternative (so we cannot use =) because of the "greater than" belief. As always, we expect to reject the null hypothesis.
Explanation:
- Hilda believes the average return on equity is greater than 8% (0.08).
- In hypothesis testing, the null hypothesis (H₀) typically represents the status quo or no effect, while the alternative hypothesis (H₁) represents what we want to prove.
- Since Hilda wants to prove that the average is greater than 8%, the alternative hypothesis should be M > 0.08.
- The null hypothesis should be the complement of the alternative: M ≤ 0.08.
- This is a one-tailed test (right-tailed test) because we're only interested in whether the mean is greater than the specified value.
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