The Return of Stock - Essay Example

According to Benford’s law, the first non-zero digits in a tax schedule generally have the above frequency distribution. This frequency table depicts that if there is no tax evasion in the tax schedule then the first non-zero digit of the tax returns should have the probability to occur as mentioned above. In the case of tax evasion, the probability distribution should differ from the above distribution. This tax evasion is calculated with the help of the Chi-square goodness of fit test.

Hypothesis testing is conducted to identify whether the probability distributions of the sample match with the standard probability as given in the above table. According to the sample provided to us, we do not reject the null hypothesis. That there is no significant evidence at a 5% level of significance to reject the null hypothesis and therefore there is no tax evasion in this case.If there would have been tax evasion, the hypothesis test would reject the null hypothesis.