Explanation:
The level of significance is the probability of rejecting the null hypothesis when it is true. The null hypothesis will be rejected if the z-statistic is greater than 1.645.
(Book 2, Module 17.2, LO 17.f)
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Question 5
An investment analyst calculated the intrinsic value of RTN Company and expects the stock to generate a 25% annual return over the foreseeable future. However, the analyst is concerned that her price forecast may be too high. She conducted a hypothesis test and concluded that at the 5% significance level, the null hypothesis can be rejected that RTN Company's investment return would be equal to or less than 25% per year. The one-tailed test utilized a z-test. Indicate the meaning of the significance level chosen by the analyst and state the correct rejection region.
A
Significance level: Reject a true null hypothesis 5% of the time. | Rejection region:
B
Significance level: Reject a false null hypothesis 95% of the time. | Rejection region:
C
Significance level: Reject a true null hypothesis 5% of the time. | Rejection region:
D
Significance level: Reject a false null hypothesis 95% of the time. | Rejection region:
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