Value Investing Principles

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Question

If the underlying theory suggests that the value of an estimated variable is less than a particular number, it is appropriate to use:

Answers

A. a right-tailed test.

B. a left-tailed test.

C. a two-tailed test.

D. either a right-tailed or left-tailed test. B

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Explanations

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A. B. C. D.

Explanation

When an observation is made and we see a value less than the threshold suggested by the theory, we would like to known the probability of getting the smaller value due simply to chance rather than to the event being driven by the theory. For this, we need to known the left-tail probabilities under the null hypothesis.

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