Confidence Interval

Dr. Vijay Kumar

vijay.gahlawat@gmail.com
Types of Estimates
We can make two types of estimates about the
population: Point Estimate and Interval Estimate.
Point Estimate: A point estimate is the sample
statistic that is used to estimate the population
parameter.
For Example- A production manager’s statement that
he would be able to produce 20000 units in the next
month is a point estimate.
Interval Estimate: It is the range of values within a
 researcher or an employee can say with some
confidence that the population parameter falls.
This range is called confidence interval.
For Example- If the production manager states that
he would be able to produce 19000 to 21000 units
, he is making an interval estimate.
And this range (19000, 21000) is called
confidence interval.
 Using the Z statistic for estimating
population mean
Z formula is

x  
z 
  
 
 n 

This formula can be rearranged algebraically for

population mean
  
  x  z 
 n 
 Continue…..
Sample mean x can be greater than or less than the
population mean; hence, the formula takes the
following form:
  
  x  z 
 n
Confidence interval for estimating population mean 
  
x  z  
2  n
OR        
 x  z        x  z  
 n   n 
 
2  2
 Continue…..
 is the area under the normal curve which is outside
the confidence interval and is located in the tails of the
normal curve.
As we know, confidence interval is the range within
which we can say with some confidence that the
population mean is located.
In order to be 100% sure that the population mean is
within the confidence interval, the confidence should be
100%, i.e., indefinitely wide, which would be useless.
 Continue…..
We use the concept of probability in order to define
some certainty. We can assign some probability that
the population mean is located with in the
confidence interval. The confidence interval with
the associated probability can be calculated as

below:        
P  x  z       x  z    (1   )
 n   n  
 
 2  2
  
0.5 - 1- 0.5 - 2
2

 
2 2

z 
z 
2 2
Example:
• A researcher taken a random sample of size 70 from
a population with a sample mean of 35 and a
population standard deviation of 4.62. Construct a
90% confidence interval to estimate the population
mean.

Solution: From the statement

n = 70, x bar = 35, S.D. (Population) = 4.62

Example:…..
For
z , we need to divide  by 2.

2

For 90% confidence level, the area on both sides of

the normal curve will be 0.4500 ( interpolating
between 0.4495 and 0.4505). So, the required
confidence interval is
       
 x  z  n      x  z  n 

2

2

  4.62    4.62 
 35  1.645     35  1.645 
  70    70 
 (35  0.909)    (35  0.909)
 34.091    35.909

This result implies that the researcher is 90%

confident that the population mean will lie between
34.091 and 35.909.
 Finite correction factor for finite
population
For finite population, we need to apply a finite correction
factor for increasing the accuracy of the solution. When
sample size is less than 5% of the population, the finite
correction factor does not significantly increase the
accuracy of the solution. In case of a finite population,
the confidence interval formula takes the following
shape:

Confidence interval for estimating population mean μ

Finite correction factor …..
   N  n    N  n
x  z       x  z   
 n N 1   n N 1 
 

 2
 2

Example: A researcher wants to measure the income level

of employees working in a company. The total employee
strength of the company is 1200. A random sample of 50
employees reveals that the average income of samples
employees is 15000. Historical data reveals that the std.
dev. is approx. 1500. Construct a 99% confidence interval
for obtaining the avg. income of all the employees
Finite correction factor …..
Solution: From the statement n=50, xbar = 15000, popul.
S.D.=1500, Popul. Size (N) = 1200.
For obtaining z  , we need to divide the value of  by 2.
2
 0.01
  0.005
2 2 . For 99% confidence level, the area on both
the sides of the normal curve will be 0.4950. The
corresponding z value for this probability area is 2.575
(interpolating between 0.4949 and 0.4951). So, the
required confidence interval is
Finite correction factor …..
   N n    N n
 x  z        x  z   
 2 n N 1   2 n N 1 
  1500  1200  50    1500  1200  50 
 15000  z0.005       15000  z0.005   
  50  1200  1    50  1200  1 

 15000  534.96    15000  534.96

 14465.04    15534.96

This result implies that the researcher is 99% confident

that the population mean (avg. income of the population)
will lie between Rs. 14465.04 and 15534.96
Confidence interval for estimating population
mean when population S.D. is unknown
  s    s 
 x  z        x  z  
 2 n   2 n 
Example: In order to estimate the customer loyalty for a
particular product, a researcher poses the following question
to a sample of 100 customers: How many years have you
been continuously using this product? This sample yielded a
mean period of 8 years with a sample standard deviation of 2
years. Construct a 95% confidence interval for estimating
the population mean.
Confidence interval to estimate population mean,
when population S.D. is unknown (small samples)

  s    s 
 x  t ,n 1       x  t ,n 1  
 2  n   2  n 

Confidence interval to estimate the population proportion p


  p  q  
  p  q 

p  z α ,n 1     p  p  z α   
 n   , n 1  n 
 2
   2
 