BY

JAMES BASUTA
basuta.james@cavendish.ac.ug

02/13/16

At the end of this topic, you will be able to define

A point estimate
Describe the level of confidence
Construct a confidence interval for the population
mean when the population standard deviation is known
Construct a confidence interval for a population mean
when the population standard deviation is unknown.

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A point estimate is a single statistic used to estimate a

population parameter.
Eg the sample mean is a point estimate of the
population mean and the sample standard deviation is a
point estimate of the population standard deviation.

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While we expect the point estimate to be close to the

population parameter, we would like to measure how
close it really is.
A confidence interval serves this purpose.

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This is a range of values constructed from sample data

so that the population parameter is likely to occur
within that range at a specified probability.
The specified probability is called the level of
confidence.

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For reasonably large samples, the results of the central

limit theorem allow us to state the following:
95% of the sample means selected from a population
will be within 1.96 standard deviations of the
population mean
99% of the sample means will lie with 2.58 standard
deviations of the population mean.

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Intervals computed in this fashion are called 95%

confidence interval and 99% confidence interval.
The 95% and 99% refer to the percentage of similarly
constructed intervals that would include the parameter
being estimated.
E.g. the 95% refers to the middle 95% of the
observations.
Therefore the remaining 5% are equally divided
between the two tails.

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0.025

0.025
0.475
-1.96

0.475
1.96

Scale of Z

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The central limit theorem states that the sampling

distribution of the sample means is approximately
normal when the sample contains at least 30
observations.
The probability of finding a Z value between 0 and
1.96 is 0.4750.
Likewise the probability of being in the interval
between -1.96 and 0 is also 0.4750.

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When we combine these two, the probability of being

in the interval -1.96 to 1.96 is 0.9500.
In most applied situations, the population standard
deviation is not available, so we estimate it as follows:

SX

S
n

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The size of the standard error is affected by two values

1. The standard deviation. If the standard deviation is
large, then the standard error will also be large.
2. however, the standard error is also affected by the
sample size. As the sample size is increased, the
standard error decreases indicating that there is less
variability in the sampling distribution of the sample
mean.

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If the sample mean is normally distributed, we can use

the standard normal distribution, i.e. z in our
calculations.
The 95% confidence interval is computed as follows,
when the number of observations in the sample is at
least 30.
i.e
S

X 1.96

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Similarly the 99% confidence interval is computed as

follows.

S
X 2.58
n

In general, a confidence for the population mean is

computed by:

S
X Z
n
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Where z depends on the level of significance.

For those cases the values of z change accordingly.
Thus, for a 92% level of confidence, the value of z in
formula is 1.75( 0.92 0.4600

corresponding closest z value is 1.75 )

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Find the corresponding Z value for the following;

Confidence
interval

Nearest
prob

Z value

80%
94%
96%

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The American Management Association wishes to have

information on the mean income of middle managers in
the retail industry. A random sample of 256 managers
reveals a sample mean of $45,420. The standard
deviation of this sample is $2,050. The association
would like answers to the following questions:
What is the population mean?
What is a reasonable range of values for the population
mean?

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Since the sample mean is a point estimate of the

unknown population mean, then our population mean is
also $45,420.
Assuming the association uses the 95% level of
significance then

S
X Z
n

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2050
$45420 1.96
$45420 $251
256

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The confidence interval is from $45169 to $45671

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1. A sample of 49 observations is taken from a normal

population. The sample is mean 55 and the sample
standard deviation is 10. Determine the 99%
confidence interval for the population mean.
2. A sample of 81 observations is taken from a normal
population. The sample mean is 40, and the sample
standard deviation is 5. determine the 95% confidence
interval for the population mean.

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3. A research firm conducted a survey to determine the

mean amount steady smokers spend on cigarettes
during a week. A sample of 49 steady smokers revealed
that the sample mean is $20 and sample standard
deviation is $5
a) what is the point estimate of the population mean?
Explain what it indicates
b) using the 95% level of confidence, determine the
confidence interval for . Explain what it indicates.

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Under conditions of unknown population standard

deviation and a sample size of less than 30, the correct
statistical procedure is to replace the standard normal
distribution with the t-distribution.
The t-distribution is a continuous distribution with
many similarities to the standard normal distribution.

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The t-distribution and the z-distribution are shown

graphically as follows

Z-distribution
t-distribution
0

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 Note

particularly that the t-distribution is

flatter, more spread out, than the standard
normal distribution.
This is because the standard deviation of the tdistribution is larger than the standard normal
distribution.

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The following characteristics of the t-distribution are

based on the assumption that the population of
interest is normal or nearly normal.
It is like the z-distribution, a continuous distribution
It is like the z-distribution, bell shaped and
symmetrical
There is not one t-distribution, but rather a family
of t-distributions

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All t-distributions have a mean of 0 but their standard

deviations differ according to the sample size n.
The t-distribution is more spread out and flatter at the
center than the standard normal distribution.

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0.025

0.025

95%

Scale of t
-2.776

2.776

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To develop a confidence interval for the population

mean using the t-distribution, we adjust our formula as
follows:

S
X t
n

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In other words to develop a confidence interval for the

population mean with an unknown population standard
deviation we:
Assume the sample is from a normal population.
Estimate the population standard deviation ( ) with
the sample standard deviation
Use the t-distribution rather than the z-distribution.

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 A tire

manufacturer wishes to investigate the

trend life of its tires. A sample of 10 tires
driven 50,000 miles revealed a sample mean
of 0.32 inch tread remaining with a standard
deviation of 0.09 inch. Construct a 95%
confidence interval for the population mean.

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Since there are only 10 observations in the

sample, then we use the t-distribution using
our formula below:

S
X t
n

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Where
X 0.32
S 0.09
n 10
d . f n 1 10 1 9
0.09
0.32 2.62
10
0.32 0.064

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0.256 to 0.384

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Use Appendix F to locate the value of t-distribution

under the following conditions
1. The sample size is 12 and the level of confidence is
95%
2. The sample size is 20 and the level of confidence is
90%
3. The sample size is 8 and the level of significance is
99%
4. How would u compare the z-distributed from tdistribution.

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