We Are About to Test a Hypothesis Using Data from a Well-Designed

question 111

Multiple Choice

We are about to test a hypothesis using data from a well-designed study. Which is true?
I. A small P-value would be strong evidence against the null hypothesis.
II. We can set a higher standard of proof by choosing $\alpha = 10 \% \text { instead of } 5 \%$
III. If we reduce the alpha level, we reduce the power of the test.

• A) none of these
• B) I only
• C) III only
• D) II only
• E) I and III only

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Definitions:

Well-Diversified Portfolio

An investment portfolio that spreads risk across various asset classes, industries, or geographical regions to reduce the impact of any single investment's poor performance.

Single Index Model

A simplified model to estimate security returns that relates these returns to a single market index, accounting for market risk.

Portfolio's Sigma

Portfolio's Sigma, often synonymous with standard deviation, quantifies the overall risk or volatility of a portfolio, indicating how its returns can vary from the expected return.

Single Index Model

A financial model that describes the return of a stock as a function of the return of a market index, plus a residual unique to the stock.