If you have an assignment that needs you to apply all your knowledge about hypothesis testing and you cannot understand how then you are at the right place. My Assignment Services explains to you everything you need to know about hypothesis testing so that you can write a flawless assignment answer. Hypothesis testing in finance explained with an easy example.
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Finance is incomplete without statistics and Hypothesis Testing is a method of statistical inference. Too much technical for you?
Basically, it is a method that analysts use to check if the statement (question) about a population parameter (sample selection) is useful or not. Want to check the power of predictions? Hypothesis Testing is a powerful tool for that.
Well, generally, this statistical tool is used by the financial analysts. But that does not mean that people belonging to other domains cannot use it. If you are an English literature student and have a thorough knowledge of Hypothesis Testing, ain’t nobody stopping you.
Anyway, suppose financial analysts want to predict the mean value that a customer can pay for the product that a firm is manufacturing. The Bugatti La Voiture Noire is in trend so let us assume that. Now, the analyst can formulate a hypothesis like “The average value a billionaire can pay for this car is $5 million.” This is a hypothesis that the firm will now test and that will be hypothesis testing.
Do you feel like Stephen Hawking right now? Hypothesis Testing is a major part of the scientific methods that is a systematic approach of measuring the theories through visual examination. A good theory is the one that makes accurate predictions. For an analyst who is making predictions about the business, hypothesis testing is a way in which he/she can give statistical support to the predictions. If the analysts say the product is going to fetch $100 million in sales in the first week, hypothesis testing is to check if that is true or not.
Will the customers pay an average $5 million for the new Bugatti car?
Alternative hypothesis, Ha > 5
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