FRM 1 Quant Type 1 Error

Aegis.Sameerdutta
Posts: 8
Joined: Mon May 09, 2016 10:39 am

FRM 1 Quant Type 1 Error

Postby Aegis.Sameerdutta » Tue Nov 15, 2016 8:08 am

Suppose the level of significance decreases from 10% to 5%. Which one of the following statements holds true about hypothesis testing?
The chances of a null hypothesis getting rejected when it is actually true become less.
The probability of making a type I error decreases.
The probability of making a type I error increases.
It becomes tougher to accept a null hypothesis when it is actually true.


Choose one answer.

a. Both iii and iv Correct
b. Only i Incorrect
c. Only iv Incorrect
d. Both i and ii Incorrect
.
The correct answer is A
Sol: When the level of significance decreases the confidence level increases and hence it gets tougher to accept a null hypothesis thus increasing chances of making type 1 error
Incorrect

YOUR ANSWER seems to be incorrect as if ALPHA or significance level decreases, so would type 1 error, its mentioned the other way round... pls help ASAP...

edupristine
Finance Junkie
Posts: 722
Joined: Wed Apr 09, 2014 6:28 am

Re: FRM 1 Quant Type 1 Error

Postby edupristine » Tue Nov 15, 2016 9:13 am

Hi Aegis

The higher the significance level, the higher the power of the test. If you increase the significance level, you reduce the region of acceptance. As a result, you are more likely to reject the null hypothesis. This means you are less likely to accept the null hypothesis when it is false
less likely to make a Type II error. Hence, the power of the test is increased.

Aegis.Sameerdutta
Posts: 8
Joined: Mon May 09, 2016 10:39 am

Re: FRM 1 Quant Type 1 Error

Postby Aegis.Sameerdutta » Fri Nov 18, 2016 8:14 am

then your initial answer is still incorrect.. pls check and respond.

Significance level or Alpha or Type 1 error decreases and in correct options it is stated probability of type 1 error increases

edupristine
Finance Junkie
Posts: 722
Joined: Wed Apr 09, 2014 6:28 am

Re: FRM 1 Quant Type 1 Error

Postby edupristine » Fri Nov 18, 2016 8:34 am

Hi Aegis

1st option is incorrect, as in this case
The chances of a null hypothesis getting rejected when it is actually true become less.
The probability of making a type I error decreases.
hence the correct answer is d


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