Question

When using Altman’s Z-Score, a Type II error occurs when: Select one: A. The company’s Z-score indicates the company is healthy, and the company stays healthy B. The company’s Z-score indicates the company is healthy, and the company goes bankrupt C. The company’s Z-score indicates the company will go bankrupt, and the company stays healthy D. The company’s Z-score indicates the company will go bankrupt, and the company stays bankrupt

Answer 1

Explanation:

Within the context of hypothesis testing, we can get type I and II errors.

A type II error is a statistical term used that describes the error that occurs when one fails to reject a null hypothesis that is actually false. This can be terms as rejecting the alternative hypothesis, even though it does not occur due to chance.

IN this context we find that our null hypothesis is company is healthy. But actually it is bankrupt.

Hence Option B is right.