Chapter 8 Interval Estimation

Chapter 8
Interval Estimation
Case Problem 1: Young Professional Magazine
1. Descriptive Statistics for the quantitative variables follow:

Variable N Mean SE Mean StDev Minimum Maximum Skewness

Age 410 30.112 0.199 4.024 19.000 42.000 -0.03

Investments 410 28538 781 15811 0.000 133400 1.71

Transactions 410 5.973 0.153 3.101 0.000 21.000 1.21

Household Income 410 74460 1720 34818 16200 322500 2.01

Descriptive statistics for the qualitative variables follow:

Gender Male: 229 Proportion male: .5585

Plan R.E. purchase Yes: 181 Proportion yes: .4415

Broadband access Yes: 256 Proportion yes: .6244

Have Children Yes: 219 Proportion yes: .5341

2. 95% Confidence Intervals

Variable N Mean StDev SE Mean 95% CI

Age 410 30.1122 4.0240 0.1987 (29.7215, 30.5029)

Variable N Mean StDev SE Mean 95% CI

Household Income 410 74459.5 34818.2 1719.5 (71079.3, 77839.8)

We can conclude with 95% confidence that the mean age of subscribers to Young Professional is
between 29.72 and 30.50 years of age. And, we can conclude with 95% confidence that the mean
household income of subscribers is between $71,079 and $77,840.

3. 95% Confidence Intervals

Variable X N Sample p 95% CI

Broadband Access 256 410 0.624390 (0.577514, 0.671266)

Variable X N Sample p 95% CI

Have Children? 219 410 0.534146 (0.485861, 0.582431)

We can conclude with 95% confidence that the proportion of subscribers with broadband access is
between 57.75% and 67.13% and that the proportion of subscribers with children is between 48.59%
and 58.24%.

4. Young Professional should be a good advertising outlet for online brokers. We see that most of the
subscribers have financial investments exclusive of their home (the mean amount is $28,538) and
some of them have a substantial amount of investments. (Several have over $100,000 of
investments). Another factor to consider is the number of stock, bond, and mutual fund transactions.
The mean number is approximately 6 per year and several subscribers make significantly more
transactions than that. Finally a large proportion of subscribers have broadband access (the sample
proportion is .6244) and this makes them more likely to do business with an online broker.

CP - 26
© 2010 Cengage Learning. All Rights Reserved.
May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 8 Interval Estimation

5. The survey results allow us to estimate that the mean age of subscribers is 30.12 years and that
53.41% of subscribers have children. Given the age of subscribers, it is reasonable to assume that
their children are young. Thus, we conclude that subscribers to Young Professional would be a good
target market for companies selling educational software and computer games for young children.

6. A variety of answers are possible here. But, from the survey results, it seems clear that articles about
investing would have appeal to many readers. Articles about real estate and architecture would
probably appeal to those subscribers planning to make a real estate purchase. Technology related
articles would probably appeal to readers as well as an occasional article on parenting and child care.

Case Problem 2: Gulf Real Estate Properties

The variables are as follows:
GV List The list price of a Gulf View condominium
GV Sale The sale price of the Gulf View condominium
GV Days The number of days to sell the Gulf View condominium
NGV List The list price of a No Gulf View condominium
NGV Sale The sale price of the No Gulf View condominium
NGV Days The number of days to sell the No Gulf View condominium

1/2. The results obtained using Minitab are as follows:

Descriptive Statistics: GV List, GV Sale, GV Days, NGV List, NGV Sale, NGV Days

Variable N Mean Median TrMean StDev SE Mean

GV List 40 474.0 437.0 462.0 197.3 31.2
GV Sale 40 454.2 417.5 441.2 192.5 30.4
GV Days 40 106.00 96.00 102.64 52.22 8.26
NGV List 18 212.8 212.5 210.0 48.9 11.5
NGV Sale 18 203.2 203.5 201.8 43.9 10.3
NGV Days 18 135.0 126.0 127.8 76.3 18.0

Variable Minimum Maximum Q1 Q3

GV List 169.9 975.0 332.7 551.9
GV Sale 165.0 975.0 314.3 530.6
GV Days 28.00 282.00 71.25 138.75
NGV List 148.0 322.0 174.9 241.0
NGV Sale 135.5 292.5 172.4 230.0
NGV Days 48.0 338.0 62.5 154.8

3. Gulf View condominiums are the more expensive as usually anticipated. A Gulf View
condominium lists for a mean price of $474,000 and a median price of $437,000. A No Gulf View
condominium lists for a mean price of $212,800 and a median price of $212,500. The Gulf View
condominiums are over twice as expensive as the No Gulf View condominiums.

The standard deviation of the list price for Gulf View condominiums is $197,300 and the standard
deviation of the list price for No Gulf View condominiums is $48,900. Thus, the Gulf View
condominiums have a greater variation in list price.

The most expensive list-price is for a Gulf View condominium at $975,000 while the least expensive
list-price is a No Gulf View condominium at $148,000.

A Box Plot shows that the No Gulf View condominiums do not have any outliers. A similar box
plot shows the highest four Gulf View list prices are outliers: $885,000, $895,000 and two at

CP - 27
© 2010 Cengage Learning. All Rights Reserved.
May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 8 Interval Estimation

$975,000. These show 4/40 or 10% of the Gulf View condominiums have an unusually high list
price.

The mean number of days to sell a condominium is slightly better for Gulf View condominiums than
for No Gulf View condominiums (106 days vs. 135 days). On average, it appears to take a little over
three months to sell a Gulf View condominium and a little over four months to sell a No Gulf View
condominium. The quickest sale was a Gulf View condominium that sold in less than a month (28
days). The slowest sale was for a No Gulf View condominium that took almost a year to sell (338
days).

Gulf View condominiums with a mean list price of $474,000 and a mean sale price of $454,200 sell
on average $474,000 - $454,200 = $19,800 (4.2%) below list price. No Gulf View condominiums
with a mean list price of $212,800 and a mean sale price of $203,200 appears to sell on average
$212,800 - $203,200 = $9,600 (4.5%) below list price. There is only a small percentage difference
in list and sale price for the two types of condominiums.

In summary, Gulf View condos are substantially more expensive and tend to sell slightly faster. The
discount off the list price is roughly 4.0 to 4.5% for both Gulf View and No Gulf View condos.

4. Using the Minitab 1-Sample t procedure

Variable N Mean StDev SE Mean 95.0% CI

GV Sale 40 454.2 192.5 30.4 ( 392.7, 515.8)
GV Days 40 106.00 52.22 8.26 ( 89.30, 122.70)

95% Confidence Intervals:

Gulf View Mean Sales Price $392,700 to $515,800

Gulf View Mean Days to Sell 89 to 123

5. Using the Minitab 1-Sample t procedure

Variable N Mean StDev SE Mean 95.0% CI

NGV Sale 18 203.2 43.9 10.3 ( 181.4, 225.0)
NGV Days 18 135.0 76.3 18.0 ( 97.1, 172.9)

95% Confidence Intervals:

No Gulf View Mean Sales Price $181,400 to $225,000

No Gulf View Mean Days to Sell 97 to 173

6. Gulf View condominiums

With n = 40, the margin of error is $59,600. To reduce the margin of error to $40,000 the
recommended sample size.

2
z.025 2 1.962 (192.518) 2
n   89
E2 402

No Gulf View condominiums

With n = 18, the margin of error is $21,800. To reduce the margin of error to $15,000 the
recommended sample size.

CP - 28
© 2010 Cengage Learning. All Rights Reserved.
May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 8 Interval Estimation

2
z.025 2 1.962 (43.9) 2
n   33
E2 152

7. From part 3, a Gulf View condominium sells on average 4.2% below its list price.

The estimated selling price is $589,000 x .958 = $564,262. Using the mean days, it is estimated to
sell in about 106 days.

From part 3, a No Gulf View condominium sells on average 4.5% below its list price.

The estimated selling price is $285,000 x .955 = $272,175. Using the mean days, it is estimated to
sell in about 135 days.

CP - 29
© 2010 Cengage Learning. All Rights Reserved.
May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.