Lessons
- Simple Random Sampling and Sampling Distribution
- Sampling Error
- Stratified Random Sampling
- Time Series and Cross Sectional Data
- Central Limit Theorem
- Standard Error of the Sample Mean
- Parameter Estimation
- Point Estimates
- Confidence Interval Estimates
- Confidence Interval for a Population mean, with a known Population Variance
- Confidence Interval for a Population mean, with an Unknown Population Variance
- Confidence Interval for a Population Mean, when the Distribution is Non-normal
- Student’s t Distribution
- How to Read Student’s t Table
- Biases in Sampling
Confidence Interval for a Population mean, with an Unknown Population Variance
If the population variance is not known, then we do the following change to the above confidence interval formula:
- Substitute the population variance (s) with the sample variance (s)
- Us t-distribution instead of normal distribution (explained in the following pages)
We use t-distribution because the use of sample variance introduces extra uncertainty as s varies from sample to sample.
Example
We take a sample of 16 stocks from a large population with a mean return of 5.2% and a standard deviation of 1.2%. The population standard deviation is not known.
Calculate the 95% confidence interval for the population mean.
The confidence interval will be:
The value of t is observed from the t-table.