CFA CFA Level 2 Calculating confidence interval

Calculating confidence interval

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      Confidence interval = Point estimate +- t-critical * std error

      While calculating this confidence interval is it assumed that we are using 2 tailed t test?

      So if we are given 5% significance level should it be taken as 5% in both tails?

    • Avatar of rahul12rahul12
        • CFA Level 3

        yes we assume a 2 tailed t test. however you may have misunderstood something here.

        so in a normal distribution for example, if it is a 95% confidence interval (i.e. 5% significance level), it means it is the z-score that leaves a probability of 2.5% (α/2) on the upper tail (right-hand tail) of the standard normal distribution. it isn’t 5% in each tail, but 5% in total, which means 2.5% in each tail.

        so that means t=1.960

        hope this clarifies

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