Identify the Type I Error or Type II Error as Indicated

question 38

Multiple Choice

Identify the Type I error or Type II error as indicated.
-In 1990, the average math SAT score for students at one school was 500. Five years later, a teacher wants to perform a hypothesis test to determine whether the average SAT score of students at the school has changed from the 1990 mean of 500. The hypotheses are: $$\begin{array} { l } \mathrm { H } _ { 0 } : \mu = 500 \\\mathrm { H } _ { \mathrm { a } } : \mu \neq 500\end{array}$$
Identify the Type II error.

• A)Reject the claim that the average math SAT score is 500 when in fact it is not 500.
• B)Fail to reject the claim that the average math SAT score is 500 when in fact it is not 500.
• C)Fail to reject the claim that the average math SAT score is 500 when in fact it is 500.
• D)Reject the claim that the average math SAT score is 500 when in fact it is 500.

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Definitions:

Default Risk

The risk that a borrower will not pay the interest and/or principal on a loan as it becomes due. If the issuer defaults, investors receive less than the promised return on the bond. Default risk is influenced by both the financial strength of the issuer and the terms of the bond contract, especially whether collateral has been pledged.

Interest Rate Risk

Arises from the fact that bond prices decline when interest rates rise. Under these circumstances, selling a bond prior to maturity will result in a capital loss; the longer the term to maturity, the larger the loss.

Real Return Bonds

Bonds issued by the federal government that offer inflation protection to investors.

Income Bonds

These are a type of debt security where interest payments depend on the issuer's earnings, meaning if the issuer's earnings are insufficient, the bondholders may not receive interest payments.