Chapter 8

Interval Estimation

• Population Mean: s Known

• Population Mean: s Unknown
• Determining the Sample Size
• Population Proportion

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Margin of error and the Interval Estimate
• A point estimator cannot be expected to provide the exact value
of the population parameter.
• An interval estimate can be computed by adding and subtracting
a margin of error to the point estimate.
Point estimate ± Margin of error
• The purpose of an interval estimate is to provide information
about how close the point estimate, is to the value of the
parameter.

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Margin of Error and the Interval Estimate
• The general form of an interval estimate of a population mean is

ഥ + Margin of error
𝒙

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Interval Estimate of a Population Mean: s Known
• To develop an interval estimate of a population mean, the margin
of error must be computed using either:
• the population standard deviation s , or
• the sample standard deviation s

• s is rarely known exactly. But often a good estimate can be

obtained based on historical data or other information.
• We refer to such cases as the s known case.

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Interval Estimate of a Population Mean: s Known
• Interval Estimate of m 𝝈
ഥ ± 𝒛𝜶/𝟐
𝒙
𝒏
where: 𝑥ҧ : the sample mean
1 -  : the confidence coefficient
z/2 : the z value providing an area of
/2 in the upper tail of the standard
normal probability distribution
s : the population standard deviation
n : the sample size
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Interval Estimate of a Population Mean: s Known

• Values of z/2 for the Most Commonly Used Confidence Levels

(Refer z table)
Confidence Table
Level  /2 Look-up Area z/2

90% .10 .05 .9500 1.645

95% .05 .025 .9750 1.960
99% .01 .005 .9950 2.576

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Meaning of Confidence

• Because 90% of all the intervals constructed using 𝒙ഥ + 𝟏. 𝟔𝟒𝟓𝝈𝒙ഥ will

contain the population mean, we say we are 90% confident that
the interval 𝒙ഥ + 𝟏. 𝟔𝟒𝟓𝝈𝒙ഥ includes the population mean m.
• We say that this interval has been established at the 90%
confidence level.

• The value .90 is referred to as the confidence coefficient.

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Interval Estimate of a Population Mean: s Known
• Example: Discount Sounds
Discount Sounds has 260 retail outlets throughout the United
States. The firm is evaluating a potential location for a new outlet,
based in part, on the mean annual income of the individuals in the
marketing area of the new location.
A sample of size n = 36 was taken; the sample mean income is
$41,100. The population is not believed to be highly skewed. The
population standard deviation is estimated to be $4,500, and the
confidence coefficient to be used in the interval estimate is .95.
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 Interval Estimate of a Population Mean: s Known
• Example: Discount Sounds
95% of the sample means that can be observed are within + 1.96 𝝈𝒙ഥ
of the population mean m. The margin of error is:
𝝈 𝟒, 𝟓𝟎𝟎
𝒛𝜶/𝟐 = 𝟏. 𝟗𝟔 = 𝟏, 𝟒𝟕𝟎
𝒏 𝟑𝟔

Thus at 95% confidence, the margin of error is $1,470.

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Interval Estimate of a Population Mean: s Known

• Example: Discount Sounds

Interval estimate of m is: 𝒙
ഥ + Margin of error

$41,100 + $1,470
That is,
$39,630 to $42,570
We are 95% confident that the interval contains the population mean.

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Interval Estimate of a Population Mean: s Known
• Example: Discount Sounds

Confidence Margin
level of error Interval estimate

90% 1,234 39,866 to 42,334 Calculated by

95% 1,470 39,630 to 42,570 yourself

99% 1,932 39,168 to 43,032

In order to have a higher degree of confidence, the margin of error

and thus the width of the confidence interval must be larger.
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Interval Estimate of a Population Mean: s Unknown
• If an estimate of the population standard deviation s cannot be
developed prior to sampling, we use the sample standard
deviation s to estimate s .
• This is the s unknown case.
• The interval estimate for m is based on the t distribution.

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t Distribution
• William Gosset, writing under the name “Student”, is the founder
of the t distribution.
• The t distribution is a family of similar probability distributions.

• A specific t distribution depends on a parameter known as the

degrees of freedom (df).

• Degrees of freedom refer to the number of independent pieces

of information that go into the computation of s.

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 t Distribution
• As the df increases, the difference between the t distribution
and the standard normal probability distribution becomes
smaller and smaller.

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Refer to t Table

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Interval Estimate of a Population Mean: s Unknown
• Interval Estimate 𝒔
ഥ ± 𝒕𝜶/𝟐
𝒙
𝒏
where: 𝑥ҧ : the sample mean
1 -  : the confidence coefficient
t/2 : the t value providing an area of /2
in the upper tail of a t distribution with n - 1 df
s : the sample standard deviation
n : the sample size
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Interval Estimate of a Population Mean: s Unknown
• Example: Apartment Rents
A reporter for a student newspaper is writing an article on the
cost of off-campus housing. A sample of 16 one-bedroom
apartments within a half-mile of campus resulted in a sample mean
of $750 per month and a sample standard deviation of $55.
Let us provide a 95% confidence interval estimate of the mean
rent per month for the population of one-bedroom apartments
within a half-mile of campus.

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Interval Estimate of a Population Mean: s Unknown
• At 95% confidence,  = .05, and /2 = .025
• t.025 is based on n - 1 = 16 - 1 = 15 df
Refer to t table

Degrees Area in Upper Tail

of Freedom .20 .10 .05 .025 .01 .005
15 .866 1.341 1.753 2.131 2.602 2.947
16 .865 1.337 1.746 2.120 2.583 2.921
17 .863 1.333 1.740 2.110 2.567 2.898
18 .862 1.330 1.734 2.101 2.520 2.878
19 .861 1.328 1.729 2.093 2.539 2.861
. . . . . . .
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Interval Estimate of a Population Mean: s Unknown
• Interval Estimate 𝒔
ഥ ± 𝒕.𝟎𝟐𝟓
𝒙
𝒏
𝟓𝟓
750 + 2.131 = 750 + 29.30
𝟏𝟔

We are 95% confident that the mean rent per month

for the population of one-bedroom apartments within
a half-mile of campus is between $720.70 and $779.30.

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Summary of Interval Estimation Procedures
for a Population Mean
Can the
Yes population standard No s Unknown
s Known deviation s be assumed
Case Case
known ?
Use the sample
standard deviation
s to estimate s

Use Use
𝝈 𝒔
ഥ ± 𝒛𝜶/𝟐
𝒙 ഥ ± 𝒕𝜶/𝟐
𝒙
𝒏 𝒏
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Sample Size for an Interval Estimate of a Population Mean (p.363)
• Interval Estimate of m 𝝈
(s Known) ഥ ± 𝒛𝜶/𝟐
𝒙
𝒏

• Margin of error 𝝈
𝑬 = 𝒛𝜶/𝟐
𝒏

• Necessary Sample Size

(𝒛𝜶/𝟐 )𝟐 𝝈𝟐
n=
𝑬𝟐
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Sample Size for an Interval Estimate of a Population Mean

• Let E = the desired margin of error.

• E is the amount added to and subtracted from the point

estimate to obtain an interval estimate.
• If a desired margin of error is selected prior to sampling, the
sample size necessary to satisfy the margin of error can be
determined.

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Sample Size for an Interval Estimate of a Population Mean

• The Necessary Sample Size equation requires a value for the

population standard deviation s .

• Even if s is unknown, a preliminary or planning value for s

can be used in the equation.

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Sample Size for an Interval Estimate of a Population Mean
• Example: Discount Sounds (slide, p.8)
Recall that Discount Sounds is evaluating a potential location
for a new retail outlet, based in part, on the mean annual income
of the individuals in the marketing area of the new location.
Suppose that Discount Sounds’ management team wants an
estimate of the population mean such that there is a .95
probability that the sampling error is $500 or less.
How large a sample size is needed to meet the required precision?

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Sample Size for an Interval Estimate of a Population Mean
𝝈
𝑬 = 𝒛𝜶/𝟐 = 𝟓𝟎𝟎
𝒏
At 95% confidence, z.025 = 1.96. Recall that s = 4,500.

(𝟏. 𝟗𝟔)𝟐 (𝟒, 𝟓𝟎𝟎)𝟐

𝒏= 𝟐
= 𝟑𝟏𝟏. 𝟏𝟕 ⋍ 𝟑𝟏𝟐 Noninteger value
(𝟓𝟎𝟎)
must be rounded up

A sample of size 312 is needed to reach a desired

precision of + $500 at 95% confidence.
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End of Chapter 8

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