Parameter Estimation
In statistics, statistical inference refers to drawing conclusion based on the data. Statistical inferences are drawn in two broad ways, namely, hypothesis testing, and parameter estimation. In...
View ArticlePoint Estimates
A point estimate is a single statistic value that is the “best guess” for the parameter value (such as population mean). The point estimates are calculated using formulas such as the formula to...
View ArticleConfidence Interval Estimates
Along with point estimate we may also want to find a range of values within which our population parameter lies with a certain confidence level (1 – α). This is called confidence interval estimate. The...
View ArticleConfidence Interval for a Population mean, with a known Population Variance
We have the following assumptions: Population variance σ2 is known Population is normally distributed Under these assumptions, the confidence interval estimate will be given as follows: Example Let’s...
View ArticleStudent’s t Distribution
Student’s t distribution, or simply called t-distribution, is a form of continuous probability distributions which is formed when we are trying to estimate the mean of a population that is normally...
View ArticleHow to Read Student’s t Table
Student’s t distribution table has the following structure: The row represents the upper tail area, while the column represents the degrees of freedom. The body contains the t values. Note that for...
View ArticleBiases in Sampling
As we have seen in this chapter, all our estimates are based on the sample selected from the population. It is therefore critical that we choose the samples correctly so that our results are not...
View ArticleWhat is a Hypothesis
Many a times, we want to test the validity of a statement. Consider the following question: Is the mean return from this mutual fund more than the mean return from the benchmark? While answering such a...
View ArticleSteps in Hypothesis Testing
The hypothesis testing process consists of the following steps: Stating the hypothesis. Identifying the appropriate test statistic and its probability distribution. Specifying the significance level....
View ArticleNull and Alternative Hypothesis
When we form a hypothesis to be tested, the hypothesis is called a null hypothesis. The null hypothesis is written as H0. A null hypothesis will be a simple statement about the population parameter....
View ArticleOne-tailed and Two-tailed Hypothesis Tests
A hypothesis test can be a one-tailed or a two-tailed test. A one-tailed test means that the hypothesis is one-sided such as the second and third formulation above. The second formulation tests whether...
View ArticleTest Statistic, Type I and type II Errors, and Significance Level
Test Statistic A test statistic is a quantity, calculated based on a sample, whose value is the basis for deciding whether or not to reject the null hypothesis. In our example, the sample statistic is...
View ArticleDecision Rule in Hypothesis Testing
A decision rule is the rule based on which the null hypothesis is rejected or not rejected. We first state the hypothesis. Then we determine if it is a one-tailed or a two tailed test. We then specify...
View ArticleDefined Benefits Plans vs. Defined Contribution Plans
Company provision of employee retirement (or post-employment) benefits often takes one of two forms: Defined contribution (DC) plans Defined benefits (DB) plans Defined Contribution (DC) Plans DC plans...
View ArticlePension Expense (both GAAP & IFRS) for the Income Statement
Pension Expense = Increase in the DBO/PBO during the accounting period. Five Components of Company Pension Expense Current Service Cost = Amount by which a company’s defined benefit obligation...
View ArticleDefined Benefit Plans & the Company Balance Sheet
A Net Asset or a Net Liability Exists (unless DBO value = value of Plan Assets) DBO End of Period Recall that the defined benefit obligation represents the present value of company retirement...
View ArticleEvaluating a Company’s Past Financial Performance
One of the key reasons an analyst looks at the financial statements of a business is to evaluate the past financial performance of a company. In the previous readings we learned a number of financial...
View ArticleProjecting a Firm’s Financial Performance
Along with analyzing past performance, an analyst will also project a firm’s future income and cash flows. A simple model to project a firm’s future performance starts with the forecast of GDP growth...
View ArticleAssessing the Credit Quality
An investor will generally analyse a company for an equity investment or a potential debt investment. With respect to debt investment, the investor is interested in assessing the credit quality, i.e.,...
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