Question

The realtor and her clients do not know the average home sale price for all of Guelph (500 was actually just a guess). However, they calculate that average sale price for their 15 listings is 400.
(a) Given that the standard deviation of sale prices is known to be 80, calculate a 99 percent confidence interval for the average sale price in Guelph.
(b) Given that the standard deviation of sale prices is unknown but estimated to be 80, calculate a 99 percent confidence interval for the average sale price in Guelph.

Answer 1

Answer:

a) The 99% confidence interval would be given by (346.708;453.292)

b) The 99% confidence interval would be given by (338.445;461.555)

Step-by-step explanation:

1) Previous concepts

A confidence interval is "a range of values that’s likely to include a population value with a certain degree of confidence. It is often expressed a % whereby a population means lies between an upper and lower interval".

The margin of error is the range of values below and above the sample statistic in a confidence interval.

Normal distribution, is a "probability distribution that is symmetric about the mean, showing that data near the mean are more frequent in occurrence than data far from the mean".

$\bar X=400$ represent the sample mean for the sample  

$\mu$ population mean (variable of interest)

$\sigma=80$ represent the population standard deviation

n=15 represent the sample size  

2) Part a

The confidence interval for the mean is given by the following formula:

$\bar X \pm z_{\alpha/2}\frac{\sigma}{\sqrt{n}}$   (1)

Since the Confidence is 0.99 or 99%, the value of $\alpha=0.01$ and $\alpha/2 =0.005$, and we can use excel, a calculator or a table to find the critical value. The excel command would be: "=-NORM.INV(0.005,0,1)".And we see that $z_{\alpha/2}=2.58$

Now we have everything in order to replace into formula (1):

$400-2.58\frac{80}{\sqrt{15}}=346.708$    

$400+2.58\frac{80}{\sqrt{15}}=453.292$

So on this case the 99% confidence interval would be given by (346.708;453.292)    

3) Part b

For this case we don't know the population deviation so we need to use the t distribution instead the normal standard distribution.

The confidence interval for the mean is given by the following formula:

$\bar X \pm t_{\alpha/2}\frac{s}{\sqrt{n}}$   (1)

We need to find the degrees of freedom first df=n-1=15-1=14

Since the Confidence is 0.99 or 99%, the value of $\alpha=0.01$ and $\alpha/2 =0.005$, and we can use excel, a calculator or a table to find the critical value. The excel command would be: "=-T.INV(0.005,14)".And we see that $t_{\alpha/2}=2.98$

Now we have everything in order to replace into formula (1):

$400-2.98\frac{80}{\sqrt{15}}=338.445$    

$400+2.98\frac{80}{\sqrt{15}}=461.555$

So on this case the 99% confidence interval would be given by (338.445;461.555)