Estimation and

Confidence Intervals
Learning Objectives
LO1 Define a point estimate.
LO2 Define level of confidence.
LO3 Compute a confidence interval for the population
mean when the population standard deviation is
known.
LO4 Compute a confidence interval for a population mean
when the population standard deviation is unknown.
LO5 Compute a confidence interval for a population
proportion.
LO6 Calculate the required sample size to estimate a
population proportion or population mean.
LO7 Adjust a confidence interval for finite populations
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 LO1 Define a point estimate.

Point Estimates

◼ A point estimate is X → 
a single value
(point) derived from s → 
a sample and used
to estimate a s → 
2 2
population value.
p → 

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 LO2 Define a confidence estimate.

Confidence Interval Estimates

◼ A confidence interval estimate 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.

C.I. = point estimate ± margin of error

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 LO2
Factors Affecting Confidence
Interval Estimates
The width of a confidence interval are
determined by:
1.The sample size, n.
2.The variability in the population, usually
σ estimated by s.
3.The desired level of confidence.

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 LO3 Compute a confidence interval for the population
mean when the population standard deviation is known.

Confidence Intervals for a Mean – σ Known

x − sample mean
z − z - value for a particular confidence level
σ − the population standard deviation
n − the number of observatio ns in the sample

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

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 LO3

Interval Estimates - Interpretation

For a 95% confidence interval about 95% of the similarly
constructed intervals will contain the parameter being estimated.
Also 95% of the sample means for a specified sample size will lie
within 1.96 standard deviations of the hypothesized population

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 LO3

Example: Confidence Interval for a Mean –

σ Known
The Nigerian 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 population
is $2,050. The association would like answers to
the following questions:

1. What is the population mean?

2. What is a reasonable range of values for the

population mean?

3. What do these results mean?

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 LO3

Example: Confidence Interval for a Mean –

σ Known
The Nigerian 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 population is $2,050. The
association would like answers to the following questions:

What is the population mean?

In this case, we do not know. We do know the sample mean is

$45,420. Hence, our best estimate of the unknown population
value is the corresponding sample statistic.

The sample mean of $45,420 is a point estimate of the unknown

population mean.

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 LO3
How to Obtain z value for a Given
Confidence Level
The 95 percent confidence refers
to the middle 95 percent of the
observations. Therefore, the
remaining 5 percent are equally
divided between the two tails.

Following is a portion of Appendix B.1.

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 LO3

Example: Confidence Interval for a Mean –

σ Known
The Nigerian 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 population is $2,050. The
association would like answers to the following questions:

What is a reasonable range of values for the population mean?

Suppose the association decides to use the 95 percent level of

confidence:

The confidence limit are $45,169 and $45,671

The ±$251 is referred to as the margin of error

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 LO3

Example: Confidence Interval for a Mean -

Interpretation
The Nigerian 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
population is $2,050. The confidence
limit are $45,169 and $45,671

What is the interpretation of the

confidence limits $45,169 and
$45,671?

If we select many samples of 256

managers, and for each sample we
compute the mean and then construct
a 95 percent confidence interval, we
could expect about 95 percent of
these confidence intervals to
contain the population mean.
Conversely, about 5 percent of the
intervals would not contain the
population mean annual income, µ
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 LO4 Compute a confidence interval for the population mean
when the population standard deviation is not known.

Population Standard Deviation (σ) Unknown

In most sampling situations the population standard deviation (σ) is
not known. Below are some examples where it is unlikely the
population standard deviations would be known.
1. The Dean of the Faculty of Social Sciences wants to estimate the mean
number of hours full-time students work at paying jobs each week. He
selects a sample of 30 students, contacts each student and asks them how
many hours they worked last week.

2. The Dean of Students wants to estimate the distance the typical commuter
student travels to class. She selects a sample of 40 commuter students,
contacts each, and determines the one-way distance from each student’s
home to the center of campus.

3. The Director of Student Loans wants to know the mean amount owed on
student loans at the time of his/her graduation. The director selects a
sample of 20 graduating students and contacts each to find the information.

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 LO4
Characteristics of the t-
distribution
1. It is, like the z distribution, a continuous distribution.
2. It is, like the z distribution, bell-shaped and symmetrical.
3. There is not one t distribution, but rather a family of t distributions.
All t distributions have a mean of 0, but their standard deviations
differ according to the sample size, n.
4. The t distribution is more spread out and flatter at the center than
the standard normal distribution As the sample size increases,
however, the t distribution approaches the standard normal
distribution

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 LO4

Comparing the z and t Distributions when n

is small, 95% Confidence Level

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 LO4
Confidence Interval for the Mean –
Example using the t-distribution

A tire manufacturer wishes to

investigate the tread life of its Given in the problem :
tires. A sample of 10 tires
driven 50,000 miles revealed a n = 10
sample mean of 0.32 inch of
tread remaining with a standard x = 0.32
deviation of 0.09 inch. s = 0.09
Construct a 95 percent
confidence interval for the
population mean.
Compute the C.I. using the
Would it be reasonable for the
manufacturer to conclude that t - dist. (since  is unknown)
after 50,000 miles the
s
population mean amount of
tread remaining is 0.30 inches?
X  t / 2,n −1
n

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 LO4

Student’s t-distribution Table

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 LO4

Confidence Interval Estimates for the Mean –

The manager of the Jabi Mall, wants to

estimate the mean amount spent per
shopping visit by customers. A sample of 20
customers reveals the following amounts
spent.

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 LO4
Confidence Interval Estimates
for the Mean – By Formula
Compute the C.I.
using the t - dist. (since  is unknown)
s
X  t / 2,n −1
n
s
= X  t.05 / 2, 20 −1
n
9.01
= 49.35  t.025 ,19
20
9.01
= 49.35  2.093
20
= 49.35  4.22
The endpoints of the confidence interval are $45.13 and $53.57
Conclude : It is reasonable that the population mean could be $50.
The value of $60 is not in the confidence interval. Hence, we
conclude that the population mean is unlikely t o be $60.
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 LO4

Confidence Interval Estimates for the Mean

Use Z-distribution Use t-distribution

If the population If the population
standard deviation is standard deviation is
known or the sample unknown and the
is greater than 30. sample is less than
30.

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 LO4

When to Use the z or t Distribution for

Confidence Interval Computation

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 LO5 Compute a confidence
interval for a population proportion.

A Confidence Interval for a Proportion (π)

The examples below illustrate the nominal scale of measurement.
1. The career services director at Nile University reports that 80
percent of its graduates enter the job market in a position
related to their field of study.
2. A company representative claims that 45 percent of Chicken
Republic sales are made at the drive-through window.
3. A survey of homes in the Gwarinpa area indicated that 85
percent of the new construction had central air conditioning.
4. A recent survey of married men between the ages of 35 and
50 found that 63 percent felt that both partners should earn a
living.

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 LO5

Using the Normal Distribution to

Approximate the Binomial Distribution
To develop a confidence interval for a proportion, we need to meet
the following assumptions.

1. The binomial conditions. Briefly, these conditions are:

a. The sample data is the result of counts.
b. There are only two possible outcomes.
c. The probability of a success remains the same from one trial
to the next.
d. The trials are independent. This means the outcome on one
trial does not affect the outcome on another.
2. The values nπ and n(1-π) should both be greater than or equal
to 5. This condition allows us to invoke the central limit theorem and
employ the standard normal distribution, that is, z, to complete a
confidence interval.

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 LO5

Confidence Interval for a Population

Proportion - Formula

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 LO5
Confidence Interval for a Population Proportion-
Example

The union representing the First, compute the sample proportion :

Bottle Company of Nigeria x 1,600
(BCN) is considering a p= = = 0.80
proposal to merge with the n 2000
Teamsters Union. According to
BCN union bylaws, at least Compute the 95% C.I.
three-fourths of the union
membership must approve any p (1 − p )
C.I. = p  z / 2
merger. A random sample of n
2,000 current BCN members
reveals 1,600 plan to vote for .80(1 − .80)
= 0.80  1.96 = .80  .018
the merger proposal. What is 2,000
the estimate of the population
proportion? = (0.782, 0.818)
Develop a 95 percent
confidence interval for the Conclude : The merger proposal will likely pass
population proportion. Basing
your decision on this sample because the interval estimate includes values greater
information, can you conclude than 75 percent of the union membership .
that the necessary proportion of
BCN members favor the
merger? Why? 9-25
 LO6 Calculate the required sample size to estimate a
population proportion or population mean.

Selecting an Appropriate
Sample Size
There are 3 factors that determine the
size of a sample, none of which has
any direct relationship to the size of
the population.
◼ The level of confidence desired.
◼ The margin of error the researcher will
tolerate.
◼ The variation in the population being Studied.

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