Lecturer: Nguyen Duong Nguyen, Mathematics Department, Faculty of Basic Science, FTU

Chapter 6. Parameter Estimation of Random Variables

Problem: Let X be an original random variable of a population, in which some

characteristic parameter of X is unknown. We must determine the approximate value of
.

The sample method allows to solve the above problem as follows: From the
population, a random sample of size n is drawn and based on that, an appropriate statistic
is built to estimate.

There are two methods of estimation: point estimation and confidence interval
estimation.

6.1 Point estimation

6.1.1 Concept
Suppose we need to estimate the characteristic parameter θ of the original random
variable X (   E ( X )  m or   V ( X )   2 , or the probability p...). From the population,
we create a random sample of size n: W = (X1, X2, …, Xn).

Choose a statistic  = f(X1, X2, …, Xn) to estimate θ. From a specific sample

w   x1 , x 2 , ..., x n  , calculate the specific value  f  x1 , x 2 , , x n  . Then the

estimate of θ is the specific value  just calculated.

There are countless statistics ̂ that can be used to estimate the parameter  . We
need to choose the "best approximation" statistic for the parameter θ. Therefore, we give

the following criterions to evaluate the quality of the statistics  .

6.1.2 Criterions

1) Unbiased estimator

Assume that the statistic  is an estimate of the parameter  of the original random
variable X. For any k specific samples drawn from the population, the statistic  will
take k specific values respectively 1 ,  2 , …,  k . If all values 1 ,  2 , …,  k are greater

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Lecturer: Nguyen Duong Nguyen, Mathematics Department, Faculty of Basic Science, FTU

than  then their mean will also be greater than  : E ( )   . Conversely, if all values 1

,  2 , …,  k will be less than  , their mean will also be less than  : E ( )   . Thus,
using a statistic whose expected value is different from the parameter  can lead to
systematic error (all values of  are greater than or less than  ). For that reason, it will
be required to find an estimator  such that its expected value is exactly equal to the
parameter  .

Definition. The statistic  of the sample is said to be an unbiased estimator of the

parameter  of the original random variable X if

E(  ) =  .

From the original random variable X in the population, draw a random sample of
size n: W = (X1, X2, …, Xn). It is easy to prove that:
1 n
● The sample mean X   Xi is an unbiased estimator of the expected value
n i 1

E(X)  m of the original random variable X (because E(X)  m ).

1 n 1 n
● The sample variance S 2   i
n  1 i 1
(X  X) 2
and the variance S *2
  (Xi  m)2 are
n i 1

both unbiased estimators of the variance V(X)  2 of the original random variable X

(because E(S2 )  2 and E(S*2 )  2 )

Y
● If X ~ A(p) , the sample proportion f = (Y is the number of elements with the
n
studied sign in the sample) is an unbiased estimator of the probability p of the original
random variable X (because E(f) = p).
Definition. If E(  )   then  is called the biased estimator of  .
The bias of an estimator  is measured by the value BS  E ( )   . Among the

biased estimators, we should choose the one with the smallest BS.
2) Efficient estimator

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Lecturer: Nguyen Duong Nguyen, Mathematics Department, Faculty of Basic Science, FTU

Although  is an unbiased estimator of  , each value of  can still deviate greatly

from  , which means each value  can still deviate greatly from E() . So, the variance

V(ˆ ) can be large. Therefore, if the variance of  is required to be small, it is possible to

limit the error in the estimate.

Definition. The statistic  of the sample is said to be the most efficient estimator of the
parameter  of the original random variable X if it is an unbiased estimator of  and
has the smallest variance among all unbiased estimates of  built on this same sample.
Theorem (Cramer-Rao Inequality). Let W = (X1, X2, …, Xn) be a random sample built
from the original random variable X whose probability density function (or probability

expression) is f (x,θ) (where θ is the parameter to be estimated) and  is any unbiased

estimator of the θ . Then
1
V(θ)  .
  ln f (x,θ) 
2

nE  
 θ

Example 1. Let X be the original random variable of the population and X ~ N(, 2 ) .
Let W   X1 , X 2 , , X n  be a random sample drawn from the original random variable

1 n
X. Prove that the sample mean X   Xi is the most efficient estimator of the
n i 1

expected value μ.
σ2
Solution. We already know that X is an unbiased estimator of μ and V(X)  .
n
(x μ)2
1 
The probability density function of X is f (x,μ)  e 2σ 2
. We have
σ 2π

1 (x  μ)2  ln f (x,μ) x  μ
ln f (x,μ)  ln    2
σ 2π 2σ 2
μ σ

2
  ln f (x,μ)   x μ 
2
n n n n
 nE   nE  2   4 E  x  μ   4 V(X)  4 σ 2  2
2

μ 
   σ  σ σ σ σ

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Lecturer: Nguyen Duong Nguyen, Mathematics Department, Faculty of Basic Science, FTU

1
 2
 V(X)
  ln f (x,μ) 
nE  
 μ 

It follows that, according to the Cramer-Rao inequality, with θ is any unbiased estimator
of μ , V(θ)  V(X) . It means X is the most efficient estimator of the expected value μ.
Example 2. Let X be the original random variable of the population and X ~ A(p) . Let
W   X1 , X 2 , , X n  be a random sample drawn from the original random variable X.

Prove that the sample proportion f is the most efficient estimator of the probability p.
p(1  p)
Solution. We know that f is an unbiased estimator of p and V(f )  .
n
The expression for the probability of X is f (x, p)  P(X  x)  p x (1  p)1x ; x  0;1 . We have
 ln f (x, p) x 1  x x p
ln f (x, p)  x ln p  (1  x) ln(1  p)    
p p 1  p p(1  p)
2 2
  ln f (x, p)   xp  n n
 nE   nE    2 E  x  p  2
2

p  V(X)
 p(1  p)  p (1  p) p (1  p) 2
2
 
n n
 p(1  p) 
p (1  p)
2 2
p(1  p)
1
 2
 V(f )
  ln f (x, p) 
nE  
 p 

It follows that, according to the Cramer-Rao inequality, for θ any unbiased estimator of p
then V(θ)  V(f ) . This leads to the sample proportion f is the most efficient estimator of
p.
* When ̂1 and ̂2 are both unbiased estimators of θ but not the most efficient
estimator, the variances of two estimators can be compared to find the more efficient
estimator. Suppose V (ˆ1 )  V (ˆ2 ) , then the efficiency of ̂1 compared to ̂2 is determined
by the following formular:

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Lecturer: Nguyen Duong Nguyen, Mathematics Department, Faculty of Basic Science, FTU

V (ˆ2 )
EF  .
V (ˆ1 )

Example. Let W = (X1, X2, X3) be a random sample drawn from the random variable
X ~ N ( ,  2 ) . We consider the following two estimators of the population mean
E( X )   :
X1 X 2 2X3
Y1   
4 12 3

and

X1 X 2 X3
Y2    .
3 2 6

a) Are Y1 and Y2 unbiased estimators of  ?

b) Are Y1 and Y2 A the most efficient estimators of μ?
c) Which estimator is more efficient and by how much?
Solution.
a) We have
X X 2X  1 1 2 1 1 2
E(Y1) = E  1  2  3   E(X1 )  E(X 2 )  E(X 3 )        
 4 12 3  4 12 3 4 12 3

and

1 1 1  1 1 1 1 1 1
E(Y2) = E  X1  X 2  X 3   E(X1 )  E(X 2 )  E(X 3 )         .
3 2 6  3 2 6 3 2 6

So, Y1 and Y2 are both unbiased estimators of  .

1 1 1
b) We know that X  X1  X 2  X3 is the most efficient estimator of μ and
3 3 3
2
V(X)  .
3
We get

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Lecturer: Nguyen Duong Nguyen, Mathematics Department, Faculty of Basic Science, FTU

X X 2X 3  1 1 4 37
V  Y1   V  1  2    V(X1 )  V(X 2 )  V(X 3 )  2
 4 12 3  16 144 9 72

and

X X X  1 1 1 1 1 1 7
V  Y2   V  1  2  3   V(X1 )  V(X 2 )  V(X 3 )   2   2  2  2 .
 3 2 6  9 4 36 9 4 36 18

2
We see that Y1 and Y2 are not the most efficient estimators of μ because V(Y1 )  and
3
2
V(Y2 )  .
3
c) We have V(Y2) < V(Y1). So Y2 is more efficient than Y1.
The efficiency of Y2 compared to Y1 is
(37 / 72) 2 7
EF    1.3214  132.14% .
(7 /18) 2 6

* We also construct a linear combination of two unbiased estimators ̂1 and ̂2 of the

form ˆ  ˆ1  (1   )ˆ2 to obtain a more efficient estimator for  , which means that we

E(ˆ )  
have to find  such that 
V(ˆ )  min .

Example. Two independent samples of sizes n1  3 and n 2  4 , respectively, are drawn

from the same random variable X~A(p) . In the class of linear estimators f = αf1 + βf2,
find the most efficient estimator of p.
Solution. We know that both f1 and f2 are unbiased estimators of p. We need to find the
value of α and  such that
E( f )  p

V ( f )  min .
We have
E(f) = E(f1 + f2) = E(f1) + E(f2) = p + p = p

This leads to  +  = 1. Moreover,

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Lecturer: Nguyen Duong Nguyen, Mathematics Department, Faculty of Basic Science, FTU

p(1  p) p(1  p)
V(f) = V(f1 + f2) = 2V(f1) + 2V(f2) =  2  (1   )2
3 4

p(1  p) p(1  p) p(1  p)

=  4 2  3(1   )2  = (7 2  6  3)  f ( )  min ,
12 12 12

where f ()  7 2  6  3 . We have

3 3
f ()  14  6  0    ; f     14  0.
7 7
3 4
So, V  f  get the minimum value when   and   .
7 7
Thus, in the class of linear estimators f  f1  f 2 , the most efficient estimator of p is
3 4
f= f1  f 2 .
7 7
3) Consistent estimator
When considering large samples, it is required that the larger the sample, the

closer the statistics ̂ of the sample is to the parameter  to be estimated.

Definition. The statistic ̂ of the sample is said to be a consistent estimator of the

parameters  of the original random variable X if ̂ converges in probability to  as

n   , which means, for any positive number  that is any small, we have:
lim P{|ˆ   | }=1 .
n 

Theorem. If ̂ is an unbiased estimator of  and lim V(ˆ )  0 then ̂ is a consistent

n 

estimator of  .
From the original random variable X in the population, draw a random sample of
size n: W = (X1, X2, …, Xn). From the above theorem, it follows that:

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Lecturer: Nguyen Duong Nguyen, Mathematics Department, Faculty of Basic Science, FTU

1 n
● X  Xi is a consistent estimator of the expected value E(X)  m of the
n i 1

original random variable X because X is an unbiased estimate of E(X) = m. On the other

2 n 
hand, V(X)   0 , where V(X)   2 .
n
Y
● If X ~ A(p) , the sample proportion f = (Y is the number of elements with the
n
studied sign in the sample) is a consistent estimator of the probability p of the original
random variable X because f is an unbiased estimate of p. On the other hand,
p(1  p) n 
V(f )   0 .
n
4) Sufficient estimator
Definition. The statistic ̂ of the sample is said to be a sufficient estimator of the
parameter θ if it contains all the information in the sample about the parameter θ

(computing the value of ̂ must use all the values of the sample).
1 n
If X has a normal distribution N(, 2 ) , the sample mean X   Xi is a
n i 1

sufficient estimator of the expected value  . If X has a zero-one distribution A(p), the
Y
sample proportion f = is a sufficient estimator of p.
n
5.1.3 Estimation function method
From the original random variable X in the population draw a random sample of
size n: W = (X1, X2, ... , Xn).
● If the expected value E  X   m of the original random variable X is unknown,

1 n
we can use X   Xi to estimate E  X   m .
n i 1

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Lecturer: Nguyen Duong Nguyen, Mathematics Department, Faculty of Basic Science, FTU

● If X ~ A(p) and the probability p is unknown, we can use the sample proportion
Y
f= (where Y is the number of elements with the studied sign in the sample) to
n
estimate p.
● If the variance V(X)   2 the original random variable X is unknown, we can use
1 n 1 n
S2  
n  1 i 1
(X i  X) 2
or S *2
 
n i 1
(Xi  m) 2 to estimate V(X)   2 .

6.2. Confidence interval estimation

Definition. The interval (G1, G2) is said to be a confidence interval of the parameter  if
the given probability is equal to (1 - α) satisfying the following condition:
P(G1 <  < G2) = 1 - α. (6.1)
The probability 1 - α is called the confidence level, and I = G2 - G1 is called the
confidence interval length.
6.2.1 Estimating the population mean (the expected value)
Assuming that the original random variable X in the population has the normal
distribution X ~ N(, 2 ) , in which E(X)   is unknown. We need to find a confidence
interval for  . To estimate μ, from the population, we make a random sample of size n:
W = (X1, X2, …, Xn)
We consider the following cases:

a) The variance V ( X )   2 is known

( X  ) n
Select the statistic: U  .

The statistic U is standard normally distributed N(0; 1).
With the confidence level (1 - α), we obtain
   
P X  u 2    X  u 1   1   , where 1 + 2 = .
 n n 

The meaning of the obtained expression is: With a given confidence level
1    , the parameter  of the original random variable X will be in the interval

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Lecturer: Nguyen Duong Nguyen, Mathematics Department, Faculty of Basic Science, FTU

   
X  u 2 ; X  u1  , with α1 + α2 = α.
 n n 
In practice, we usually only use some of the following special cases:
- The two-sided confidence interval for  : (take α1 = α2 = α/2)

   
X  u / 2 ; X  u / 2  (6.2)
 n n 
This tells us that the difference between the sample mean X and the population
mean  lies between  u / 2 / n and  u / 2 / n with probability 1  . In other
words, with the probability 1  , we have

| X |  u  /2 .
n
We label this value  , which stands for the margin of error (also called the
maximum error of the estimate or the bound on the error of estimation); that is,

 u / 2 .
n
- The one-sided confidence interval that gives the upper bound for  : (take α2 = 0,
α1 = α then u  = u0 = + )
2

  
 ; X  u  (6.3)
 n 
The expression (6.3) is used to estimate the maximum value of μ.
-The one-sided confidence interval that gives the lower bound for  : (take α1 = 0,
α2 = α then u  = u0 = + )
1

  
X  u ;   (6.4)
 n 
The expression (6.4) is used to estimate the minimum value of μ.
* Determining the Sample Size: Minimum sample size such that with a given confidence
level (1 - α), the length of the confidence interval does not exceed the value I0 ( I  I 0 )

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 Lecturer: Nguyen Duong Nguyen, Mathematics Department, Faculty of Basic Science, FTU

(or the margin of error does not exceed the value  0 (   0 )) is the smallest positive
integer k that satisfies the following inequality:

4 2 2 2
k 2
u / 2  2 u / 2 . (6.5)
I02 0
Example. The height of eucalyptus in a forest is a random variable that has a normal
distribution with a standard deviation of 0.64 m. To determine the average height of the
eucalyptus in that forest, we randomly measure 35 trees. The measurement results are as
follows:
Height
(6.5-7.0) (7.0-7.5) (7.5-8.0) (8.0-8.5) ( 8.5-9.0) (9.0-9.5)
range (m)
Number of
2 4 10 11 5 3
trees
With the 95% confidence level, let:
a) estimate the mean height of the eucalyptus in that forest.

20.5 b) if the required the margin of error does not exceed the value 0.1 m, what is the
minimum size sample to be investigated?
Solution. Let X be the height of the eucalyptus. According to the assumption,
X ~ N  , 2  with 2  0,642 . The average height of the eucalyptus in the forest is E(X)

= μ. This is a problem of estimating the two-sided confidence interval of the parameter μ

of a normally distributed random variable when the variance is known  2  0, 64 2 . The
two-sided confidence interval for μ is:
   
X  u  / 2 ;X  u / 2  .
 n n 
To compute x , we established the following table:
xi ni nixi

6.75 2 13.5

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Lecturer: Nguyen Duong Nguyen, Mathematics Department, Faculty of Basic Science, FTU

7.25 4 29

7.75 10 77.5

8.25 11 90.75

8.75 5 43.75

9.25 3 27.75

 n = 35 282.25

We have

x
n x i i

282.25
 8.0643
n 35
With the confidence level 1    0.95 , we obtain  / 2  0.025 . Thus,
u  /2  u 0.025  1.96 .

The two-sided 95% confidence interval for μ is:

     0.64 0.64 
x  u  /2 ; x  u  /2    8.06  1.96;8.06   1.96    7.8523; 8.2763
 n n   35 35 

So, with the 95% confidence level, from the given sample, the average height of
eucalyptus in that forest is in the interval (7.8523 m; 8.2763 m).
b) We have

2 0.642
k u 2 /2  (1.96)2  157.3519 ⇒ k = 158 trees.
02 (0.1) 2

Therefore, if the required the margin of error does not exceed the value 0.1 m, a
sample of at least 158 trees should be investigated.

b) The variance V(X) = 2 is unknown

(X  ) n
Select statistic T  , where S is the sample standard deviation.
S

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Lecturer: Nguyen Duong Nguyen, Mathematics Department, Faculty of Basic Science, FTU

As we know, T has Student distribution with (n - 1) degrees of freedom.

With the confidence level 1 - α, we obtain
S (n 1) S (n 1)
P(X  t X t )  1   , where 1 + 2 = .
n 2 n 1
Thus, the confidence interval for  with the confidence level (1 - α) is

 S ( n 1) S ( n 1) 
X  t ; X  t  , where 1 + 2 = . (6.6)
 n 2 n 1 
- The two-sided confidence interval for  (take α1 = α2 = α/2):

 S ( n 1) S ( n 1) 
 X  t /2 ; X  t / 2  . (6.7)
 n n 
- The one-sided confidence interval that gives the upper bound for  (take α2 = 0,
α1 = α):
 S ( n 1) 
 ; X  t  (6.8)
 n 
- The one-sided confidence interval that gives the lower bound for  : (take α1 =

0, α2 = α t0( n 1)   )):

 S ( n 1) 
X  t ;   (6.9)
 n 
* Determining the Sample Size: Minimum sample size such that with a given confidence
level (1 - α), the length of the confidence interval does not exceed the value I0 ( I  I 0 )

(or the margin of error does not exceed the value  0 (   0 )) is the smallest positive
integer k that satisfies the following inequality:

4S 2
  S2
 ,
2 2
k t( n/21)  t( n/21) (6.10)
I 02  02
where n is the preliminary sample size.
Example 1. To determine the average weight of a type of chicken egg, a random sample
of 25 chicken eggs was weighed, for which the sample mean is 38.5 grams and the

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Lecturer: Nguyen Duong Nguyen, Mathematics Department, Faculty of Basic Science, FTU

sample variance is 27.04 (grams)2. Assume egg weight is a random variable that has a
normal distribution. With the confidence level of 99%:
a) Find a two-sided confidence interval for the mean weight of this type of egg.
b) If the required the margin of error does not exceed 0.6 grams, at least how many eggs
of this type must be weighed?
Solution.
a) Let X be the weight of the egg. According to the assumption, X has a normal

distribution X ~ N (  ;  2 ) . The average weight of this type of egg is E(X) =  . This is a

problem of estimating by the two-sided confidence interval for the parameter  of a

normally distributed random variable N(;  2 ) when 2 is unknown. The two-sided

confidence interval for  is:

 S (n 1) S (n 1) 
X  t  / 2 ;X  t / 2  .
 n n 
1)
 / 2  t 0,005
With the confidence level 1 - α = 0.99, then α/2 = 0.005. We have t (n (24)

= 2,797.
According to the assumption, we have x = 38,5; s2 = 27,04  s = 5,2. So, the
two-sided 99% confidence interval for  is:

 5.2 5.2 
 38.5   2.797;38.5   2.797    35.5911; 41.4089 
 25 25 

In conclusion: With the confidence level of 99%, from the given specific sample,
the average weight of chicken eggs is in the interval  35.5911; 41.4089  .

b) We have

s2
 
1) 2 27.04
k t (n
 /2   2.797 2  587.6099 .
02 0.6 2

So, with 99% confidence, if the required the margin of error does not exceed 0.6
grams, at least 588 eggs must be weighed.

14
Lecturer: Nguyen Duong Nguyen, Mathematics Department, Faculty of Basic Science, FTU

Example 2. The yield of a maize variety A in one area was reported through 36 harvest
points and the results are as follows:
Yield Number of harvest
(quintals/ha) points
7 2
9 5
11 14
13 10
17 5
n = 36
With the 95% confidence level, estimate the minimum average yield of the maize
variety A of this region. Assume the yield of the maize variety A in the region is a
random variable that has normal distribution.
Solution. Let X be the yield of the maize variety A in the region. X has the normal

distribution N(;  2 ) . The average yield of the maize variety A is E ( X )   . This is an

estimation problem by the one-sided confidence interval that gives the lower bound for 

of a normally distributed random variable N(;  2 ) when 2 is unknown. The one-sided

confidence interval that gives the lower bound for  is

 S (n 1) 
X  t  ;  
 n 
For the given sample, we have the following table

xi ni nixi

7 2 14 98
9 5 45 405
11 14 154 1694
13 10 130 1690
17 5 85 1445

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Lecturer: Nguyen Duong Nguyen, Mathematics Department, Faculty of Basic Science, FTU

n = 36 428 5332

x
n i x i 428
  11.8889
n 36

ms   n i x i2
 (x)2 
5332
 11.88892  6.7652
n 36

n 36
s2  .ms  .6.7652  6.9585  s = 2.6379
n 1 35

With the confidence level of 1    0.95 , we have  = 0,05. So,

1)
t (n
  t (35)
0.05  u 0.05  1.645 .

Therefore, the one-sided 95% confidence interval that gives the lower bound for 
is
 s (n 1)   2.6379 
x  t  ;    11.8889  .1.645;    11.1657;    .
 n   36 

In conclusion: With the 95% confidence level, from the given sample, the
minimum average yield of the maize variety A in this region is 11.1657 quintals/ha.
6.2.2 Estimating the population variance
Assume that the original random variable X in the population has a normal distribution

N(,  2 ) but its variance V  X   2 is unknown. To estimate 2 , from the population,

we create a random sample of size n: W = (X1, X2, …, Xn).

We consider two cases:
a) The expected value  is known

nS*2
Select the statistic:   2
.
2
nS*2
The statistics 2  has a Chi-squared distribution with n degrees of freedom.
2
With the confidence level 1- α, we get

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Lecturer: Nguyen Duong Nguyen, Mathematics Department, Faculty of Basic Science, FTU

 *2 
 nS nS*2   1 .
P 2(n)    2(n)
2
 1 
 2 1 

It means, with the confidence level (1 - α), the confidence interval for 2 is:
 *2 *2 
 nS   2  nS  .
  2( n) 12(n) 
 2 1 


- If 1 = 2 = , the two-sided confidence interval for 2 is:
2
 nS *2 nS *2 
 2(n) ; 2(n)  .
 
  / 2 1 / 2 
- If α2 = 0, α1 = α, the one-sided confidence interval that gives the upper bound for
σ2:
 nS *2 
 0; 2( n ) 
  
 1 

- If α1 = 0, α2 = α, the one-sided confidence interval that gives the lower bound for
σ2 :
 nS *2 
 2( n) ;   .
  
Example. The cost of raw materials per unit of product is random variable that has a
normal distribution with a mean of 20 grams. People weigh 25 products of this type and
get the following results
The cost of raw materials
19.5 20 20.5
per unit of product (gram)
Number of corresponding
5 18 2
products
With the 90% confidence level, estimate the dispersion of the cost of raw
materials.

17
Lecturer: Nguyen Duong Nguyen, Mathematics Department, Faculty of Basic Science, FTU

Solution. Let X be the cost of raw materials per unit of product. X has a normal
distribution with the expected value   20 . This is a problem of estimating the variance

of a normally distributed random variable N(;  2 ) when  is known. So, the two-sided

confidence interval for 2 is:

 nS*2 nS*2 
 2(n) ; 2(n)  .
 
  / 2 1 / 2 
We have

2(25)
/2  0.05  37.65 ; 1 /2   0,95  14.61 .
2(25) 2(25) 2(25)

To find s*2 , we create the following tabular

xi   ni  xi   
2
xi ni

19.5 5 -0.5 1.25

20.0 18 0 0
20.5 2 0.5 0.5

n = 25 1.75

1 k 1.75
s*2  
n i 1
n i (x i  ) 2 
25
 0.07

Therefore, from the given specific sample, the two-sided 90% confidence interval

for 2 is:
 25  0.07 25  0.07 
 ;    0.0464; 0.1198  .
 37.65 14.61 

b) The expected value  is unknown

(n  1)S2
Select the statistic: 2 
2

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Lecturer: Nguyen Duong Nguyen, Mathematics Department, Faculty of Basic Science, FTU

(n  1)S2
The statistics 2  has a Chi-squared distribution with (n - 1) degrees of
2
freedom.
With the confidence level 1- α, we get
 
(n  1)S2 (n  1)S2
P  2(n 1)  2  2(n 1)   1   , where 1 + 2 = .
  1 
 2 1 

So, with the confidence level (1 - α), the confidence interval for 2 is:
 2
 (n  1) S   2  (n  1) S 
2

  2( n 1) 12(n 1) 

 2 1 

- If 1 = 2 = , the two-sided confidence interval for 2 is:
2
 (n  1) S 2 (n  1) S 2 
 2 ( n 1) ; 2 ( n 1)  .
  1 / 2 
  /2
- If α2 = 0, α1 = α, the one-sided confidence interval that gives the upper bound for
σ2:
 (n  1) S 2 
 0; 2( n 1) 
  
 1 
- If α1 = 0, α2 = α, the one-sided confidence interval that gives the lower bound for
σ2 :
 (n  1) S 2 
 2( n 1) ;  
  
Example. The riskiness of a stock is usually measured by the standard deviation of that
stock returns. Tracking the stock returns of a company over the past 5 years, getting the
following results 15%, 10%, 20%, 7%, 14%. With 90% confidence, estimate the standard
deviation of the stock returns of that company, knowing that the stock returns is a random
variable that has a normal distribution.

19
 Lecturer: Nguyen Duong Nguyen, Mathematics Department, Faculty of Basic Science, FTU

Solution. Let X be the stock returns of that company. According to the assumption
X ~ N(, 2 ) . The standard deviation of stock returns is  . This is a problem of
estimating by the two-sided confidence interval for the parameter  of a normally
distributed random variable when the expected value  is unknown. The two-sided

confidence interval for σ 2 is:

 (n  1)S2 (n  1)S2 
 2(n 1) ; 2(n 1)  .
  1 / 2 
 /2
From the specific sample n = 5, we have
15  10  20  7  14
x  13.2
5

152  102  202  7 2  142

ms   13.22  19.76
5

n 5
s2  ms  (19.76)  24.7
n 1 4

1)
With the confidence level of 1-  = 0.9, we have 2(n
/2  0.05
2(4)
 9.488 and
1)
12(n
 /2  0.95  0.7107 . Thus, the two-sided 90% confidence interval for σ is
2(4) 2

 (n  1)S2 (n  1)S2   4  24.7 4  24.7 

 2(n 1) ; 2(n 1)     10.4132;139.0179  .
  9.488 0.7107 
;
  
  /2 1 /2 

From this, the two-sided 90% confidence interval for  is

 3.2269;11.7906  .
Therefore, with 90% confidence, from a given sample, the standard deviation of
the stock returns of that company is from 3.2269% to 11.7906%.
20.5 6.2.3 Estimating the population proportion

20
Lecturer: Nguyen Duong Nguyen, Mathematics Department, Faculty of Basic Science, FTU

Suppose that in a population of size N, there are M elements bring the studied
sign. Randomly select an element, let p be the probability of the event "selecting the
element with the studied sign":
M
p  .
N
If an element is randomly selected and X is the number of occurrences of the
studied sign,
1, if the selected element carries the studied sign
X
0, if the selected element does not carry the studied sign
then X is a random variable has a zero - one distribution with the parameter p.
Assuming p is unknown, we need to estimate the parameter p. From the
population, taking a randomly sampled of size n: W = (X1, X2, ..., Xn), in which there are
k elements of the sample bring the studied sign. The sample proportion defined as
k
f  .
n

Suppose we investigate a sample of size n ≥ 100, we choose the statistic:

(f  p) n
U=
f (1  f )

This statistic has an approximate standard normal distribution N(0, 1).

With the confidence level (1 - α), we have
 f (1  f ) f (1  f ) 
Pf  u 2  p  f  u 1   1   , where 1   2   .
 
 n n 
Thus, with the confidence level (1 - α), the confidence interval for p is:
 f (1  f ) f (1  f ) 
 f  u 2 ; f  u1  , where 1   2   .

 n n 
- The two-sided confidence interval for p (take α1 = α2 = α/2):
 f (1  f ) f (1  f ) 
 f  u / 2 ; f  u / 2  .

 n n 

21
Lecturer: Nguyen Duong Nguyen, Mathematics Department, Faculty of Basic Science, FTU

- The one-sided confidence interval that gives the upper bound for p (take α2 = 0,
α1 = α):
 f (1  f ) 
 ; f  u  .

 n 
- The one-sided confidence interval that gives the lower bound for p (take α1 = 0,
α2 = α):
 f (1  f ) 
 f  u ;   .

 n 

f (1  f )
* The margin of error:   u / 2
n
* Determining the Sample Size: Minimum sample size such that with a given confidence
level (1 - α), the length of the confidence interval does not exceed the value I0 ( I  I 0 ) (or

the margin of error does not exceed the value  0 (   0 )) is the smallest positive integer
k that satisfies the following inequality:
4 f (1  f ) f (1  f )
k u2 / 2  u2 / 2 .
I 02  02
Example. To determine the germination rate of a batch of seeds, people sowed 300
seeds, found 276 seeds germinated. With the 95% confidence level, let
a) estimate the two-sided confidence interval for the proportion of germinated seeds of
that batch.
b) estimate the two-sided confidence interval for the number of germinated seeds of that
batch, if that batch consists of 5000 seeds.
c) estimate the two-sided confidence interval for the number of seeds of that batch, if that
batch consists of 3000 germinated seeds.
d) if we want the length of the confidence interval is not more than 0.02, at least how
many seeds we have to sow?
e) estimate the maximum proportion of non-germinated seeds of that batch.
Solution.

22
Lecturer: Nguyen Duong Nguyen, Mathematics Department, Faculty of Basic Science, FTU

a) Let p be the proportion of germinated seeds of that batch. The two-sided confidence
interval for p is
 f (1  f ) f (1  f ) 
 f  u  / 2 ;f  u/2  .

 n n 
From a specific sample, we have
276
f   0.92 .
300
Since 1    0.95 , u /2  u 0.025  1.96 .
So, the two-sided 95% confidence interval of p is:
 0.92(1  0.92) 0.92(1  0.92) 
 0.92  1.96;0.92  1.96  
  0.8893; 0.9507  .
 300 300 
It means that the germination proportion of that batch of seeds is from 88.93% to
95.07%.
b) Let M be the number of germinated seeds of that batch and N be the number of seeds
of the whole batch.
We have
M M
p   .
N 5000

According to part a) we have

0.8893 < p < 0.9507,
which means that
M
0.8893   0.9507
5000
From that, we get
4446.5 < M < 4753.5
So, with the 95% confidence level, from a specific sample, we have the number of
germinated seeds of that batch belongs to the interval (4446; 4754).
c) According to part a) we have
0.8893 < p < 0.9507,

23
Lecturer: Nguyen Duong Nguyen, Mathematics Department, Faculty of Basic Science, FTU

which means that

3000
0.8893   0.9507
N
From that, we get
3155.5696 < N < 3373.4398
So, with 95% confidence, from a specific sample, we have the number of seeds of
that batch belongs to the interval (3155; 3374).
d) Let k be number of seeds must be sown. Since the length of the confidence interval is
not more than 0.02, we have

4f (1  f ) 4(0.92)(1  0.92)(1.96) 2
k u 2 /2   2827.42
I02 (0.02)2
So, if we want the length of the confidence interval is not more than 0.02, we have
to sow at least 2828 seeds.
e) Let p1 be the proportion of non-germinated seeds of that batch. The one-sided
confidence interval that gives the upper bound for p1 is:
 f1 (1  f1 ) 
 ;f1  u  .
 n 
 
We have
300  276
f1   0.08; u  u 0.05  1.645 .
300
From the specific sample, the one-sided 95% confidence interval that gives the
upper bound for p1
 0.08  (1  0.08) 
 ;0.08  1.645    ;0.1058  .

 300 
Thus, the maximum proportion of non-germinated seeds of that batch is 10.58%.

24