Before reading this article, make sure that you have read the article on probability distributions in general. The binomial probability distribution is a discrete distribution: it has only a finite number of possible values that it can take.  To understand the binomial distribution, you first have to understand the idea of a Bernoulli trial. A […]

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The first thing I’d like to say about Chebyshev’s inequality is that it’s a good thing for most CFA candidates that these exams are written, not oral.  If they were oral, most would fail simply because they cannot pronounce “Chebyshev” (or, for that matter, at Level II, “Modigliani” or “heteroskedasticity”).  The first part is pronounced […]

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Much of finance centers around the idea of the time value of money: a dollar (or euro, or yen, or pound, or yuan, or franc, or won, or ruble, or bhat, or rupee, or whatever) today is worth more than a dollar (or euro, or . . . well, you get the idea) tomorrow, because […]

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There are eight articles on hypothesis testing: Synopsis Step 1: State the hypotheses Step 2: Select the appropriate test statistic Step 3: Specify the level of significance Step 4: State the decision rule for testing the null hypothesis Step 5: Collect the sample data and calculate the value of the test statistic Step 6: Make […]

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Hypothesis testing is essentially just an application of confidence intervals: we construct a confidence interval for a particular value, then compute a test statistic and check whether or not it lies in the confidence interval, then do something with that information.  There are several steps to hypotheses testing, but in a nutshell it’s just checking […]

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There are eight articles on hypothesis testing: Synopsis Step 1: State the hypotheses Step 2: Select the appropriate test statistic Step 3: Specify the level of significance Step 4: State the decision rule for testing the null hypothesis Step 5: Collect the sample data and calculate the value of the test statistic Step 6: Make […]

This article is for members only.  You can become a member now by purchasing a

CFA® Level I Quantitative Methods Membership, CFA® Level I Membership

This will give you access to this and all other articles at that membership level.

There are eight articles on hypothesis testing: Synopsis Step 1: State the hypotheses Step 2: Select the appropriate test statistic Step 3: Specify the level of significance Step 4: State the decision rule for testing the null hypothesis Step 5: Collect the sample data and calculate the value of the test statistic Step 6: Make […]

This article is for members only.  You can become a member now by purchasing a

CFA® Level I Quantitative Methods Membership, CFA® Level I Membership

This will give you access to this and all other articles at that membership level.

There are eight articles on hypothesis testing: Synopsis Step 1: State the hypotheses Step 2: Select the appropriate test statistic Step 3: Specify the level of significance Step 4: State the decision rule for testing the null hypothesis Step 5: Collect the sample data and calculate the value of the test statistic (you are here) […]

This article is for members only.  You can become a member now by purchasing a

CFA® Level I Quantitative Methods Membership, CFA® Level I Membership

This will give you access to this and all other articles at that membership level.

There are eight articles on hypothesis testing: Synopsis Step 1: State the hypotheses Step 2: Select the appropriate test statistic Step 3: Specify the level of significance Step 4: State the decision rule for testing the null hypothesis (you are here) Step 5: Collect the sample data and calculate the value of the test statistic […]

This article is for members only.  You can become a member now by purchasing a

CFA® Level I Quantitative Methods Membership, CFA® Level I Membership

This will give you access to this and all other articles at that membership level.