In question 18 to calculate confidence interval, book is using critical value of 1.96 for .025 which is according to 2 tail test for .05 level of significance, but based on information given in text, it is supposed to be 1 tail test which means for .05 level of significance critical value is close to 1.645. Please suggest, TIA
Where does it say anything about a one-tailed test???
Also, I am not sure how a confidence interval can be one-tailed?
You must be referring to this section of the question:
_ He also believes that for each 1 percent increase in pre-offer price adjustment, the initial return will increase by less than 0.5 percent, holding other variables constant. _
Bear in mind, that this is a hypothesis which we then test using our estimate, and for which we use a one-tailed test.
In question 18 you are constructing a 5% confidence interval around that estimate, so you want to know, the interval that contains 5% of values, so 2.5 above and 2.5 below.
What do you read in the text that leads you to believe that it’s supposed to be a 1-tail test?
I don’t see anything that would lead me to that conclusion.
Confidence intervals always have two tails.
thanks all for clarifying
One tailed: H0 > X or H0< X
Two tailed: H0 does not equal x
Since the questions is saying it’s less than, its a one tailed test.
I presume an interval will always have two limits (an upper and a lower limit). This rules out the possibility of it being a one-tailed test.
To be absolutely clear: confidence intervals (in the CFA curriculum) have two tails. Always.