16 Confidence Interval-1

Estimation and Confidence Intervals
Prof. Noor Md. Rahmatullah
8/29/2018 rahmatnm@yahoo.com 1
Introduction
On many occasions we do not have enough

information to calculate an exact value of
population parameter (μ, σ, and P) and therefore
make the best estimate of this value from the
corresponding sample statistic (such as x̅ , s, p
bar ).
The need to use the sample statistic to draw conclusions
about the population characteristics is one of the
fundamental applications of statistical inference in
business and economics. A few applications are given:
1) A production manager needs to determine the
proportion of items being manufactured that do not
match with quality standards.
2) A telephone service company may be interested to
know the average length of a telephone call and its
standard deviation.
3) A company needs to understand consumer awareness
of its product.
4) A service centre needs to determine the average
amount of time a customer spend in queue.
In all such cases, a decision-maker needs to
examine the following two concepts that are
useful for drawing statistical inference about an
unknown value of population based upon random
samples:
a) Estimation
b) Hypothesis testing
Estimation: The method to estimate the value of a
population parameter from the value of the
corresponding sample statistic.
Estimation
Point Interval
Estimation Estimation
Basic Terminology
1. Point estimate: The value of sample statistic that
estimate population parameter.
2. Interval estimate: The interval calculated from a
sample expected to include the corresponding
population parameter
3. Margin of error: The value added or subtracted
from a point estimate in order to develop an
interval estimate of a population parameter. The
margin of error can be determined once the
standard deviation and the sample size are known.
4. Confidence interval: The interval within which the
population parameter expected to lie.
5. Confidence limits: The boundaries (the both upper
and lower) of a confidence interval.
6. Confidence level: The confidence associated with

an interval estimate. It is expressed in terms of
probability that the true probability parameter is
included in the confidence interval.
Confidence Intervals
The standard deviation of a sampling distribution is
called the standard error of the mean (basically they
are measures of sampling variability or estimates of
dispersion or spread).
A standard error generally has a level of confidence
associated with it. You use the standard error of the
mean to determine how close to the true population
mean you can expect your sample mean to be and
how much confidence you can place in that
expectation.
To reduce the amount of sampling variability you can
make your sample larger and more homogeneous.
Finding a Point Estimate
A social networking website allows its users to add friends,
send messages, and update their personal profiles. The
following represents a random sample of the number of
friends for 40 users of the website. Find a point estimate of
the population mean µ.
140, 105, 130, 97, 80, 165, 232, 110, 214, 201, 122,
98, 65, 88, 154, 133, 121, 82, 130, 211, 153, 114, 58,
77, 51, 247, 236, 109, 126, 132, 125, 149, 122, 74,
59, 218, 192, 90, 117, 105
Solution
The sample mean of the data is
x
 x 5232
  130.8
n 40
So, the point estimate for the mean number of friends
for all users of the website is 130.8 friends.
Example-1: A sample of 200 randomly selected BUS-
172 NSU students were asked how much money they
spent on computer related purchases over the past
week. The sample mean for the 200 students was Tk.
2500.
a) Did the selected students spend an average of
Tk. 2500 on computer purchases last week?
b) What can be inferred by the result that the
sample mean is Tk. 2500?
c) How could you be more confident in the
sample mean?
Solution-1:
a) No. The 200 students selected may just happen to
be bigger spenders than those who were not
chosen. In fact, the average for all the students
(the population mean) could be very different
from the sample mean of Tk. 2500. One can never
know with absolute certainty even approximately
what the population mean is. For instance, what if
one student not polled happened to spend Tk.
650000 on computer purchases last week? The
effect of including that student might be to raise
the mean figure to over Tk. 25000 .
b) The information can be used to suggest the
probability of student spending trends but not
with absolute certainty (unless the sample
includes the entire population).
c) By increasing the sample size, we can be more

confident that the population mean lies "fairly
close" to the sample mean we obtained. This idea
of "confidence" as opposed to "certainty" is what
is important to statisticians.
Level of Confidence or Confidence Intervals
Confidence levels are used when two sets of data are

being compared. A confidence level is the likelihood of
obtaining a particular result by chance rather than
due to a truly significant difference in the two sets of
data. How well the sample statistic estimates the
underlying population value is always an issue. A
confidence interval addresses this issue because it
provides a range of values which is likely to contain
the population parameter of interest.
A 95% confidence
interval means that
there is a 95% chance
that the confidence
interval contains the
population mean. The
standard normal
distribution is
sometimes called
the Z distribution. A Z score always reflects the number of
standard deviations a particular score is above or below the
mean.
If you are calculating a 95% confidence interval, then z = 1.96
A 90% confidence interval means that there is a 90%
chance that the confidence interval contains the
population mean. If you are calculating a 90%
confidence interval, then z = 1.645
A 99% confidence interval means that there is a 99%
chance that the confidence interval contains the
population mean. If you are calculating a 99%
confidence interval, then z = 2.56
When a sample size is large, the confidence interval for
the population mean is calculated using the formula :
μ  x  Margin of error
σ
 μx  z
n
σ σ
 xz μ xz
n n
Confidence Intervals when population Standard
Deviation σ is unknown
In many situations, the population standard deviation is not
known. With a large sample size (n ≥ 30) you can replace the σ
with the sample standard deviation Sx and solve using the
formula as an interval estimator. The margin of error can be
determined once the standard deviation and the sample size are
known. It represents a statistic expressing the amount of
random sampling error in a survey's results.
Sx
μx  z
n
Sx Sx
 xz  μ xz
n n
Finding a Margin of Error
A social networking website allows its users to
add friends, send messages, and update their
personal profiles. A random sample of the
number of friends for 40 users of the website
with the mean number of friends for all users
of the website is 130.8 friends and standard
deviation is 53. Find the margin of error for
the mean number of friends for all users of the
website at 95% confidence level.
Solution
The z-score that corresponds to a 95% confidence
level is 1.96. This implies that 95% of the area under
the standard normal curve falls within 1.96 standard
deviations of the mean. You don’t know the
population standard deviation σ, you can use s in
place of σ.
Sx
Margin of error  z
n
53
 1.96   16.4
40
Interpretation : We are 95% confident that the margin
of error for the population mean is 16.4 friends.
Example 2:
A random sample of 100 teenagers was surveyed, and
the mean number of DVD movies that they had rented
in the past month was 9.4 with results considered
accurate within 1.4, 18 times out of 20.
a) What % of confidence level are the results?
b) What is the margin of error?
c) What is the confidence interval? Explain.
Solution 2: 18 x
a) 18 out of 20 is a 90% confidence level 
b) 1.4 (results accurate within 1.4) 20 100
c) The confidence interval is from 9.4 – 1.4 = 8 to
9.4 + 1.4 = 10.8 movies rented last month. The
margin of error (1.4) was added to find the high
point and subtracted to find the low point.
Example 3:
A publishing company has just published a new college
textbook. Before the company decides the price at which
to sell this textbook, it wants to know the average price
of all such textbooks in the market. The research
department at the company took a sample of 25
comparable textbooks and collected information on
their prices. This information produced a mean price of
$145 for this sample. It is known that the standard
deviation of the prices of all such textbooks is $35 and
the population of such prices is normal.
a) What is the point estimate of the mean price of
all such college textbooks?
b) Construct a 90% confidence interval for the mean
price of all such college textbooks.
a) The point estimate of the mean price of all such
college textbooks is $145; that is,
Point estimate μ = x̅ = $145
Sx 35
b) μ  x  z  145  (1.65  )
n 25
 145  11.55
 $ 133.45  μ  $156.55
Thus, we are 90% confident that the mean price of
all such college textbooks is between $133.45 and
$156.55.
Exercises:
1) A random sample of size 125 is collected and the
following is determined: the sample mean is
521, sample standard deviation is 28. Determine
a confidence interval of 95%, 90% and 99%.
2) In the group of 345 children surveyed, the

sample mean was 11.3 and the standard
deviation was 1.8. Find the 99% confidence
interval for this data.
3) Find out a confidence level of 95% using the

following information: Sample mean = 2.6
Standard deviation = 1.836 Sample size = 80
4) For a data set obtained from a sample, n = 20
and x̅ = 20.4. It is known that σ = 2.3. The
population is normally distributed.
a) What is the point estimate of μ?
b) Make a 99% confidence interval for μ.
c) What is the margin of error of estimate for
part b?
5) For a data set obtained from a sample, n = 81 and

x̅ = 52.4. It is known that σ = 4.8.
a) What is the point estimate of μ?
b) Make a 95% confidence interval for μ.
c) What is the margin of error of estimate for
part b?
6) The standard deviation for a population is σ =
15.3. A sample of 36 observations selected from
this population gave a mean equal to 74.8.
a) Make a 90% confidence interval for μ.
b) Construct a 95% confidence interval for μ.
c) Determine a 99% confidence interval for μ.
d) Does the width of the confidence intervals
constructed in parts a through c increase as the
confidence level increases? Explain your
answer.
7) With a sample size of 800, and a standard
deviation of 4.3, what is the 90% and
95% confidence interval for population
mean μ, if the sample mean is 4.5?
QUIZ
1. What is the appropriate z-value for a 90%
confidence level?
a) 1.96
b) 1.645
c) 2.576
d) 1.282
confidence level?
a) 1.96
b) 1.645
c) 2.576
d) 1.282
confidence level?
a) 1.96
b) 1.645
c) 2.576
d) 1.282
4. Which would result in a wider confidence interval?
90% confidence level or 95% confidence level?
95% confidence level would result in a wider
confidence interval. Increasing the confidence
level increases the length of the confidence
interval.

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Estimation and Confidence Intervals

Prof. Noor Md. Rahmatullah

On many occasions we do not have enough

6. Confidence level: The confidence associated with

c) By increasing the sample size, we can be more

Confidence levels are used when two sets of data are

2) In the group of 345 children surveyed, the

3) Find out a confidence level of 95% using the

5) For a data set obtained from a sample, n = 81 and

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