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Chapter 8
Statistics for Managers Using Microsoft Excel, 4e © 2004 Prentice-Hall, Inc. Chap 7-1
Chapter Goals
After completing this chapter, you should be
able to:
Distinguish between a point estimate and a confidence
interval estimate
Construct and interpret a confidence interval estimate for a
single population mean using both the Z and t distributions
Form and interpret a confidence interval estimate for a
single population proportion
Determine the required sample size to estimate a mean or
proportion within a specified margin of error
Statistics for Managers Using Microsoft Excel, 4e © 2004 Prentice-Hall, Inc. Chap 7-2
Confidence Intervals
Statistics for Managers Using Microsoft Excel, 4e © 2004 Prentice-Hall, Inc. Chap 7-3
Point and Interval Estimates
Lower Upper
Confidence Confidence
Point Estimate Limit
Limit
Width of
confidence interval
Statistics for Managers Using Microsoft Excel, 4e © 2004 Prentice-Hall, Inc. Chap 7-4
Point Estimates
Mean μ X
Proportion p ps
Statistics for Managers Using Microsoft Excel, 4e © 2004 Prentice-Hall, Inc. Chap 7-5
Confidence Intervals
Statistics for Managers Using Microsoft Excel, 4e © 2004 Prentice-Hall, Inc. Chap 7-6
Confidence Interval Estimate
An interval gives a range of values:
Takes into consideration variation in sample
statistics from sample to sample
Based on observation from 1 sample
Gives information about closeness to
unknown population parameters
Stated in terms of level of confidence
Can never be 100% confident
Statistics for Managers Using Microsoft Excel, 4e © 2004 Prentice-Hall, Inc. Chap 7-7
Estimation Process
Sample
Statistics for Managers Using Microsoft Excel, 4e © 2004 Prentice-Hall, Inc. Chap 7-8
General Formula
Statistics for Managers Using Microsoft Excel, 4e © 2004 Prentice-Hall, Inc. Chap 7-9
Confidence Level
Confidence Level
Confidence in which the interval
will contain the unknown
population parameter
A percentage (less than 100%)
Statistics for Managers Using Microsoft Excel, 4e © 2004 Prentice-Hall, Inc. Chap 7-10
Confidence Level, (1-)
(continued)
Suppose confidence level = 95%
Also written (1 - ) = .95
A relative frequency interpretation:
In the long run, 95% of all the confidence
intervals that can be constructed will contain the
unknown true parameter
A specific interval either will contain or will
not contain the true parameter
No probability involved in a specific interval
Statistics for Managers Using Microsoft Excel, 4e © 2004 Prentice-Hall, Inc. Chap 7-11
Confidence Intervals
Confidence
Intervals
Population Population
Mean Proportion
σ Known σ Unknown
Statistics for Managers Using Microsoft Excel, 4e © 2004 Prentice-Hall, Inc. Chap 7-12
Confidence Interval for μ
(σ Known)
Assumptions
Population standard deviation σ is known
Population is normally distributed
If population is not normal, use large sample
σ
XZ
n
(where Z is the normal distribution critical value for a probability of
α/2 in each tail)
Statistics for Managers Using Microsoft Excel, 4e © 2004 Prentice-Hall, Inc. Chap 7-13
Finding the Critical Value, Z
Z 1.96
Consider a 95% confidence interval:
1 .95
α α
.025 .025
2 2
Statistics for Managers Using Microsoft Excel, 4e © 2004 Prentice-Hall, Inc. Chap 7-14
Common Levels of Confidence
Commonly used confidence levels are 90%,
95%, and 99%
Confidence
Confidence
Coefficient, Z value
Level
1
80% .80 1.28
90% .90 1.645
95% .95 1.96
98% .98 2.33
99% .99 2.58
99.8% .998 3.08
99.9% .999 3.27
Statistics for Managers Using Microsoft Excel, 4e © 2004 Prentice-Hall, Inc. Chap 7-15
Intervals and Level of Confidence
Sampling Distribution of the Mean
/2 1 /2
x
Intervals μx μ
extend from x1
σ x2 (1-)x100%
XZ of intervals
n
to constructed
σ contain μ;
XZ
n ()x100% do
not.
Confidence Intervals
Statistics for Managers Using Microsoft Excel, 4e © 2004 Prentice-Hall, Inc. Chap 7-16
Example
Statistics for Managers Using Microsoft Excel, 4e © 2004 Prentice-Hall, Inc. Chap 7-17
Example
(continued)
Statistics for Managers Using Microsoft Excel, 4e © 2004 Prentice-Hall, Inc. Chap 7-19
Latihan soal
Page 285 :
8.1
Statistics for Managers Using Microsoft Excel, 4e © 2004 Prentice-Hall, Inc. Chap 7-20
Confidence Intervals
Confidence
Intervals
Population Population
Mean Proportion
σ Known σ Unknown
Statistics for Managers Using Microsoft Excel, 4e © 2004 Prentice-Hall, Inc. Chap 7-21
Confidence Interval for μ
(σ Unknown)
Statistics for Managers Using Microsoft Excel, 4e © 2004 Prentice-Hall, Inc. Chap 7-22
Confidence Interval for μ
(σ Unknown)
(continued)
Assumptions
Population standard deviation is unknown
Population is normally distributed
If population is not normal, use large sample
Use Student’s t Distribution
Confidence Interval Estimate:
S
X t n-1
n
(where t is the critical value of the t distribution with n-1 d.f. and an
area of α/2 in each tail)
Statistics for Managers Using Microsoft Excel, 4e © 2004 Prentice-Hall, Inc. Chap 7-23
Student’s t Distribution
d.f. = n - 1
Statistics for Managers Using Microsoft Excel, 4e © 2004 Prentice-Hall, Inc. Chap 7-24
Degrees of Freedom (df)
Idea: Number of observations that are free to vary
after sample mean has been calculated
Example: Suppose the mean of 3 numbers is 8.0
Standard
Normal
(t with df = )
t (df = 13)
t-distributions are bell-
shaped and symmetric, but
have ‘fatter’ tails than the t (df = 5)
normal
0 t
Statistics for Managers Using Microsoft Excel, 4e © 2004 Prentice-Hall, Inc. Chap 7-26
Student’s t Table
Confidence t t t Z
Level (10 d.f.) (20 d.f.) (30 d.f.) ____
Note: t Z as n increases
Statistics for Managers Using Microsoft Excel, 4e © 2004 Prentice-Hall, Inc. Chap 7-28
Example
A random sample of n = 25 has X = 50 and
S = 8. Form a 95% confidence interval for μ
Statistics for Managers Using Microsoft Excel, 4e © 2004 Prentice-Hall, Inc. Chap 7-29
Latihan soal
Latihan hal 292
8.11
Statistics for Managers Using Microsoft Excel, 4e © 2004 Prentice-Hall, Inc. Chap 7-30
Confidence Intervals
Confidence
Intervals
Population Population
Mean Proportion
σ Known σ Unknown
Statistics for Managers Using Microsoft Excel, 4e © 2004 Prentice-Hall, Inc. Chap 7-31
Confidence Intervals for the
Population Proportion, p
Statistics for Managers Using Microsoft Excel, 4e © 2004 Prentice-Hall, Inc. Chap 7-32
Confidence Intervals for the
Population Proportion, p
(continued)
ps(1 ps)
ps Z
n
where
Z is the standard normal value for the level of confidence desired
ps is the sample proportion
n is the sample size
Statistics for Managers Using Microsoft Excel, 4e © 2004 Prentice-Hall, Inc. Chap 7-34
Example
Statistics for Managers Using Microsoft Excel, 4e © 2004 Prentice-Hall, Inc. Chap 7-35
Example
(continued)
A random sample of 100 people shows
that 25 are left-handed. Form a 95%
confidence interval for the true proportion
of left-handers.
ps Z ps(1 ps )/n
Statistics for Managers Using Microsoft Excel, 4e © 2004 Prentice-Hall, Inc. Chap 7-37
Determining Sample Size
Determining
Sample Size
Statistics for Managers Using Microsoft Excel, 4e © 2004 Prentice-Hall, Inc. Chap 7-38
Sampling Error
The required sample size can be found to reach
a desired margin of error (e) with a specified
level of confidence (1 - )
Statistics for Managers Using Microsoft Excel, 4e © 2004 Prentice-Hall, Inc. Chap 7-39
Determining Sample Size
Determining
Sample Size
For the
Mean Sampling error
(margin of error)
σ σ
XZ eZ
n n
Statistics for Managers Using Microsoft Excel, 4e © 2004 Prentice-Hall, Inc. Chap 7-40
Determining Sample Size
(continued)
Determining
Sample Size
For the
Mean
σ Z σ
2 2
eZ Now solve
for n to get n 2
n e
Statistics for Managers Using Microsoft Excel, 4e © 2004 Prentice-Hall, Inc. Chap 7-41
Determining Sample Size
(continued)
Statistics for Managers Using Microsoft Excel, 4e © 2004 Prentice-Hall, Inc. Chap 7-42
Required Sample Size Example
If = 45, what sample size is needed to
estimate the mean within ± 5 with 90%
confidence?
Z σ 2
(1.645) (45) 2 2 2
n 2
2
219.19
e 5
Statistics for Managers Using Microsoft Excel, 4e © 2004 Prentice-Hall, Inc. Chap 7-43
If σ is unknown
Statistics for Managers Using Microsoft Excel, 4e © 2004 Prentice-Hall, Inc. Chap 7-44
Determining Sample Size
Determining
Sample Size
For the
Proportion
Determining
Sample Size
For the
Proportion
Statistics for Managers Using Microsoft Excel, 4e © 2004 Prentice-Hall, Inc. Chap 7-46
Determining Sample Size
(continued)
Statistics for Managers Using Microsoft Excel, 4e © 2004 Prentice-Hall, Inc. Chap 7-47
Required Sample Size Example
Statistics for Managers Using Microsoft Excel, 4e © 2004 Prentice-Hall, Inc. Chap 7-48
Required Sample Size Example
(continued)
Solution:
For 95% confidence, use Z = 1.96
e = .03
ps = .12, so use this to estimate p
Statistics for Managers Using Microsoft Excel, 4e © 2004 Prentice-Hall, Inc. Chap 7-49
Tugas di rumah
Statistics for Managers Using Microsoft Excel, 4e © 2004 Prentice-Hall, Inc. Chap 7-50
PHStat Interval Options
options
Statistics for Managers Using Microsoft Excel, 4e © 2004 Prentice-Hall, Inc. Chap 7-51
PHStat Sample Size Options
Statistics for Managers Using Microsoft Excel, 4e © 2004 Prentice-Hall, Inc. Chap 7-52
Using PHStat
(for μ, σ unknown)
A random sample of n = 25 has X = 50 and
S = 8. Form a 95% confidence interval for μ
Statistics for Managers Using Microsoft Excel, 4e © 2004 Prentice-Hall, Inc. Chap 7-53
Using PHStat
(sample size for proportion)
How large a sample would be necessary to estimate the true
proportion defective in a large population within 3%, with
95% confidence?
(Assume a pilot sample yields ps = .12)
Statistics for Managers Using Microsoft Excel, 4e © 2004 Prentice-Hall, Inc. Chap 7-54
Applications in Auditing
Six advantages of statistical sampling in
auditing
Statistics for Managers Using Microsoft Excel, 4e © 2004 Prentice-Hall, Inc. Chap 7-55
Applications in Auditing
(continued)
Can provide more accurate conclusions on the
population
Examination of the population can be time consuming and
subject to more nonsampling error
Samples can be combined and evaluated by different
auditors
Samples are based on scientific approach
Samples can be treated as if they have been done by a
single auditor
Objective evaluation of the results is possible
Based on known sampling error
Statistics for Managers Using Microsoft Excel, 4e © 2004 Prentice-Hall, Inc. Chap 7-56
Confidence Interval for
Population Total Amount
Point estimate:
Population total NX
S Nn
NX N( t n1 )
n N 1
(This is sampling without replacement, so use the finite population
correction in the confidence interval formula)
Statistics for Managers Using Microsoft Excel, 4e © 2004 Prentice-Hall, Inc. Chap 7-57
Confidence Interval for
Population Total: Example
Statistics for Managers Using Microsoft Excel, 4e © 2004 Prentice-Hall, Inc. Chap 7-58
Example Solution
N 1000, n 80, X 87.6, S 22.3
S Nn
NX N ( t n1 )
n N 1
22.3 1000 80
(1000)(87.6) (1000)(1.9905)
80 1000 1
87,600 4,762.48
Statistics for Managers Using Microsoft Excel, 4e © 2004 Prentice-Hall, Inc. Chap 7-59
Confidence Interval for
Total Difference
Point estimate:
Total Difference ND
D i
D i1
n
where Di audited value - original value
Statistics for Managers Using Microsoft Excel, 4e © 2004 Prentice-Hall, Inc. Chap 7-60
Confidence Interval for
Total Difference
(continued)
SD Nn
ND N( t n1 )
n N 1
where n
i
(D D ) 2
SD i1
n 1
Statistics for Managers Using Microsoft Excel, 4e © 2004 Prentice-Hall, Inc. Chap 7-61
One Sided Confidence Intervals
Application: find the upper bound for the
proportion of items that do not conform with
internal controls
ps(1 ps) N n
Upper bound ps Z
n N 1
where
Z is the standard normal value for the level of confidence desired
ps is the sample proportion of items that do not conform
n is the sample size
N is the population size
Statistics for Managers Using Microsoft Excel, 4e © 2004 Prentice-Hall, Inc. Chap 7-62
Ethical Issues
Statistics for Managers Using Microsoft Excel, 4e © 2004 Prentice-Hall, Inc. Chap 7-63
Chapter Summary
Statistics for Managers Using Microsoft Excel, 4e © 2004 Prentice-Hall, Inc. Chap 7-65