Module 7:

At the end of this module, students are expected to :

1. Define a point estimate.

2. Define confidence interval.

3. Compute a confidence interval for the population mean when the

population standard deviation is known.

4. Compute a confidence interval for a population mean when the

population standard deviation is unknown.
 σ

A Point Estimate is a single value(point) derived from a sample and used to estimate a
population value .

Examples: Sample mean, sample standard deviation, sample variance, etc. are point
estimates.
X → 
s →
s →
2 2

p →
Where 𝑋ത = sampling mean & 𝜇 = population mean,
𝑠 = sample standard deviation & 𝜎 = population standard deviation,
𝑠 2 = sample variance & 𝜎 2 = population variance, and
𝑝 = sample proportion & 𝜋 = population proportion.
Definition: Confidence Interval and Level of Confidence
A confidence interval is a range of values, derived from sample data,
that is likely to contain the true value of an unknown population parameter
(like the mean or variance) with a specified level of confidence.

For example, we estimate the mean yearly salary for software developers in Metro Manila to be
₱900,000. This estimate ranges from ₱850,000 to ₱950,000. We can express our confidence in
this range by stating a probability. For instance, we might say that we are 95% confident that the
mean yearly salary of software developers in Metro Manila falls between ₱850,000 and ₱950,000.
❑ Range Around an Estimate: When we calculate a confidence interval, we're taking
a sample statistic (such as a sample mean or variance ) and creating a range around it
that we believe includes the true population parameter.

For instance, if our sample data estimates the average salary for software
developers to be ₱900,000, we might calculate a confidence interval from ₱850,000 to
₱950,000.

❑ Confidence Level: The confidence interval is associated with a confidence level,

commonly 90%, 95%, or 99%. This level indicates how certain we are that the interval
includes the true population parameter. A 95% confidence level means that if we
repeated the same sampling process many times, about 95% of those intervals would
contain the true mean.
❑ Interpretation: It’s important to understand that the confidence interval does not
guarantee that the true population parameter is within the interval in a single instance.
Instead, it reflects the reliability of the interval estimation process.

For example, if we say we’re 95% confident that the average salary of software
developers falls between ₱850,000 and ₱950,000, it means that 95% of similar intervals,
calculated with the same method, would contain the true population mean.

❑ Interval Width and Precision: The width of the confidence interval is affected by
factors like sample size and variability in the data. Larger samples and less variability
lead to narrower (more precise) intervals, while smaller samples and higher variability
produce wider intervals.
 𝜎
𝝈
Formula: ഥ± 𝒛
𝑪. 𝑰. = 𝒙
𝒏
where 𝑥ҧ = sample mean
𝑧 = the z-score corresponding to the desired confidence level (e.g., 1.96 for 95%
confidence).
𝜎 = the population standard deviation
𝑛 = number of observations in the sample

Remarks:

1. The width of the interval is determined by the level of confidence and the size of the standard error of the mean.
2. The standard error is affected by two values:
- Standard deviation
- Number of observations in the sample
• The confidence Interval can be written as
𝑥ҧ − 𝐸 , 𝑥ҧ + 𝐸 𝑜𝑟 𝑥ҧ − 𝐸 < 𝜇 < 𝑥ҧ + 𝐸

where :
𝜇 = 𝑝𝑜𝑝𝑢𝑙𝑎𝑡𝑖𝑜𝑛 𝑚𝑒𝑎𝑛
𝐸 = 𝑚𝑎𝑟𝑔𝑖𝑛 𝑜𝑓 𝑒𝑟𝑟𝑜𝑟
𝑥ҧ − 𝐸 = 𝑡ℎ𝑒 𝑙𝑜𝑤𝑒𝑟 𝑐𝑜𝑛𝑓𝑖𝑑𝑒𝑛𝑐𝑒 𝑙𝑖𝑚𝑖𝑡
𝑥ҧ + 𝐸 = 𝑡ℎ𝑒 𝑢𝑝𝑝𝑒𝑟 𝑐𝑜𝑛𝑓𝑖𝑑𝑒𝑛𝑐𝑒 𝑙𝑖𝑚𝑖𝑡

To find the margin of error , the following formula :

𝜎
𝐸=𝑧
𝑛
Interval Estimates Interpretation
 We are not restricted to the 95 and 99 % levels of confidence . We can select many
confidence level between 0 and 100 % and find the corresponding value z .

How to Find the 𝑍 − 𝑆𝑐𝑜𝑟𝑒 for a Confidence Level

1. Identify the Confidence Level: The confidence level (e.g., 90%, 95%, or 99%) tells you the
proportion of data that falls within the interval centered around the mean.

2. Divide the confidence level by 2.

For example:
0.90
For a 90% confidence level, = 0.4500
2
0.95
For a 95% confidence level, = 0.4750
2
0.99
For a 99% confidence level, = 0.4950
2

3. Find the 𝑍 − 𝑆𝑐𝑜𝑟𝑒 using the z-table . Find the corresponding z-value of the 0.4500 , 0.4750 ,
0.4950
•90% confidence level: 𝑍 = 1.645
•95% confidence level: 𝑍 = 1.96
•99% confidence level: 𝑍 = 2.576
 Example 1 The mean score of a random sample of 49 third year BSIT students who
took the midterm exam is calculated to be 78 . The population variance is
known to be 0.16
a. Find the 95% confidence interval for the mean of the entire third-year BSIT students.
b. Find the lower and upper confidence limits.
Given Data :
𝟎. 𝟒
Sample mean, 𝑥ҧ = 78 𝑪. 𝑰. = 𝟕𝟖 ± 𝟏. 𝟗𝟔
Population variance, 𝜎 2 = 0.16 𝟒𝟗
(𝑡ℎ𝑒𝑟𝑒𝑓𝑜𝑟𝑒, 𝜎 = 0.16 = 0.4 ) 𝑪. 𝑰. = 𝟕𝟖 + 𝟏. 𝟗𝟔
𝟎.𝟒
= 𝟕𝟖. 𝟏𝟏
Sample size, 𝑛 = 49 𝟒𝟗
Confidence level = 95% 𝟎.𝟒
𝑪. 𝑰. = 𝟕𝟖 − 𝟏. 𝟗𝟔 = 𝟕𝟕. 𝟖𝟗
𝟒𝟗

Solution :
𝝈 𝟕𝟕. 𝟖𝟗 < 𝜇 < 𝟕𝟖. 𝟏𝟏
a. 𝑪. 𝑰. = 𝒙ഥ ± 𝒛 𝒏

b. Find the lower and upper confidence limits.

Determine the 𝑍 − 𝑆𝑐𝑜𝑟𝑒 for a 95% Confidence Level
𝒛 = 𝟏. 𝟗𝟔 Lower limit = 77.89
Upper limit = 𝟕𝟖. 𝟏𝟏
 The American Management Association wishes to have information on the
Example 2 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 population is $2,050. The association would like to find answers to the
following questions:
a. What is the population mean?
b. What is a reasonable range of values for the population mean?
c. What do these results mean?
b. Reasonable range of values for the population mean.
Solution : Suppose the association decides to use the 95
a. In this case, we do not know. We do know the sample percent level of confidence:
From the given problem, we know that 𝒙 ഥ = $𝟒𝟓, 𝟒𝟐𝟎, 𝝈 =
mean is $45,420. Hence, our best estimate of the $𝟐, 𝟎𝟓𝟎, 𝒏 = 𝟐𝟓𝟔 and since we decide to use 95% level of
unknown population value is the corresponding sample confidence, then 𝒛 = 𝟏. 𝟗𝟔
𝝈
ഥ± 𝒛
𝑪. 𝑰. = 𝒙
statistic which is the sample mean. 𝒏
𝟐, 𝟎𝟓𝟎
𝐶. 𝐼. = 𝟒𝟓, 𝟒𝟐𝟎 ± 𝟏. 𝟗𝟔
The sample mean of $45,420 is a point estimate of 𝟐𝟓𝟔
the unknown population mean. . Hence, the confidence limits are $45,169 and $45,671,
and we say that the confidence interval is
($45,168.89 < 𝜇 < $45,671.13).
 The American Management Association wishes to have information on the
Example 2 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 population is $2,050. The association would like to find answers to the
following questions:

c. What do these results mean?

Answer :
What is the interpretation of the 95% confidence interval?
▪ Select many samples of 256 managers, compute their 95
percent confidence intervals
▪ About 95 percent of these confidence intervals will
contain the population mean.
▪ Conversely, about 5 percent of the intervals would not
contain the population mean.

Therefore, this means that the American Management

Association is 95% sure/certain/confident that the population
mean income of middle managers in the retail industry lies
between $45,169 and $45,671.
 σ

In most sampling situations the population standard deviation (σ) is not known.
In computing for the confidence interval estimate of a population with unknown standard
deviation, 𝑡 distribution will be used instead of 𝑧. Like in a 𝑧 distribution, we also assume
that the distribution is normal or approximately normally distributed when using 𝑡
distribution.

𝒔
Formula: ഥ±𝒕
𝑪. 𝑰. = 𝒙
𝒏
Where 𝑥ҧ = sample mean
𝑡 = 𝑡 value for a particular confidence level
𝑠 = the sample standard deviation
𝑛 = number of observations in the sample
 A tire manufacturer wishes to investigate the tread life of its tires. A sample of 10 tires
Example 3 driven 50,000 miles revealed a sample mean of 0.32 inches of tread remaining with a
standard deviation of 0.09 inches.
a. Construct a 95 percent confidence interval for the population mean.
b. Would it be reasonable for the manufacturer to conclude that after 50,000 miles the
population mean amount of tread remaining is 0.30 inches?
Solution:

Given: 𝑥ҧ = 0.32
𝑠 = 0.09 (𝑠𝑎𝑚𝑝𝑙𝑒 𝑠𝑡𝑎𝑛𝑑𝑎𝑟𝑑 𝑑𝑒𝑣𝑖𝑎𝑡𝑖𝑜𝑛)
𝑛 = 10
𝑐𝑜𝑛𝑓𝑖𝑑𝑒𝑛𝑐𝑒 𝑙𝑒𝑣𝑒𝑙 = 95% 𝑜𝑟 0.95

a. Construct a 95 percent confidence interval for the population

mean.
𝟎. 𝟎𝟗
𝒔 𝑪. 𝑰. = 𝟎. 𝟑𝟐 ± 𝟐. 𝟐𝟔𝟐
ഥ±𝒕
𝑪. 𝑰. = 𝒙 𝟏𝟎
𝒏 0.09 0.09
Using the t distribution table , to find the 𝑡 value, you need to look for the 𝐶. 𝐼. = 0.32 + 2.262 = 𝟎. 𝟑𝟖𝟒 𝐶. 𝐼. = 0.32 − 2.262 = 𝟎. 𝟐𝟓𝟔
10 10
intersection of the degrees of freedom (𝒅𝒇) and the level of confidence
95%. In a 𝑡 distribution,
𝑑𝑓 = 𝑛 − 1. Thus, 𝑑𝑓 = 10 − 1 = 9. b. Yes ,it is reasonable for the manufacturer to conclude that after
Observe that the intersection of 𝑑𝑓 = 9 and 95% confidence level is 2.262.
50,000 miles the population mean amount of tread remaining is 0.30
Thus, 𝒕 = 𝟐. 𝟐𝟔𝟐
inches.
T- Distribution table
 A researcher wants to estimate the average amount of money students at a university spend
Example 4 on textbooks per semester. A sample of 25 students is taken, and the sample mean amount
spent is found to be $500. The sample standard deviation is $80. Assume a 95% confidence
level.
Given data:
Sample mean, 𝑥ҧ = 500 𝟖𝟎
𝑪. 𝑰. = 𝟓𝟎𝟎 ± 𝟐. 𝟎𝟔𝟒
Sample size, 𝑛 = 25 𝟐𝟓
Sample standard deviation, 𝑠 = 80
Confidence level = 95% = [500 − 33.024 , 500 + 33.024]

Solution : 𝐶𝑜𝑛𝑓𝑖𝑑𝑒𝑛𝑐𝑒 𝐼𝑛𝑡𝑒𝑟𝑣𝑎𝑙 = [466.976, 533.024]

𝒔
ഥ±𝒕
𝑪. 𝑰. = 𝒙
𝒏

𝑑𝑓 = 25 − 1 = 24

Using the table , determine the 𝑡 − 𝑠𝑐𝑜𝑟𝑒 ,

𝒕 = 𝟐. 𝟎64