If a Test of Hypothesis Has a Type I Error $\alpha$

question 125

Multiple Choice

If a test of hypothesis has a Type I error probability ( $\alpha$ ) of 0.01, it means that

• A)if the null hypothesis is true, you don't reject it 1% of the time.
• B)if the null hypothesis is true, you reject it 1% of the time.
• C)if the null hypothesis is false, you don't reject it 1% of the time.
• D)if the null hypothesis is false, you reject it 1% of the time.

---

Definitions:

Market Risk

The possibility for an investor to experience losses due to factors that affect the overall performance of the financial markets.

Diversifiable Risk

The portion of investment risk that can be reduced or eliminated through diversification among different assets.

Financial Leverage

Utilizing debt to finance additional assets, aiming to increase returns to shareholders but also increasing risk.

ROE

A metric indicating how effectively a company uses shareholders' funds to generate profits.