CFA Level 1: False Statements about Confidence Levels and Tests of Significance

False Statements about Confidence Levels and Tests of Significance

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Question

Which of the following statements is false regarding confidence levels and/or tests of significance?

Answers

Explanations

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A. B. C. D. E. F.

Explanation

More than one of these answers is incorrect. Specifically, in most hypothesis tests, the significance level is equal to the probability of a Type I error (denoted by the Greek letter alpha) and the power of the test can be found by (1 - beta), where beta represents the probability of a Type II error. Remember that statisticians are much more concerned with the probability of a Type I error, which is defined as the act of incorrectly rejecting the null hypothesis. A Type II error, which is defined as the act of incorrectly failing to reject the null hypothesis, is much more difficult to predict. Second, power of a test is not equal to the confidence level of the test.