CENTRAL LIMIT

THEOREM
CENTRAL LIMIT THEOREM
• If all samples of a particular size are selected from any
population, the sampling distribution of the sample mean is
approximately a normal distribution. This approximation
improves with larger samples.
• The larger the sample size, the more closely the sampling
distribution of sample mean, will look like a normal distribution.
• The Central Limit Theorem is used to gain information about a
sample mean when the variable is normally distributed or when
the sample size is 30 or more.
Application of Central Limit Theorem in real-world situation:
https://www.youtube.com/watch?v=N7wW1dlmMaE
• The sampling distribution of the sample mean is a probability distribution
of all possible sample means of the same sample size.
• If the population follows a normal distribution, the sampling distribution
of the sample mean will also follow the normal distribution for samples of
any size. If the population is not normally distributed, the sampling
distribution of the sample mean will approach a normal distribution when
the sample size is at least 30. Assume the population standard deviation is
known. To determine the probability that a sample mean falls in a
particular region, use the following formula.
Where:
z = z value
x = the value of any particular observation or measurement
µ = population mean
δ = population standard deviation
= = sample mean
n = sample population
Example. The average cost per household of owning a brand-new car is
P5,000. Suppose we randomly selected 40 households, determine the
probability that the sample mean for these 40 households is more than
P5,350? Assume the variable is normally distributed and the standard
deviation is P1,230.
Given:
= 5,350
µ = 5,000
δ = 1,230
n = 40
 Applying the Central Limit Theorem in Excel
• Suppose we have a
distribution with a mean
of 8 and a standard
deviation of 4. We can
use the following
formulas in Excel to
find both the mean and
the standard deviation • The mean of the sampling distribution is simply equal
of the sampling to the mean of the population distribution, which is 8.
distribution with a • The standard deviation of the sampling distribution is
equal to the population standard deviation divided by
sample size of 15: the sample size, which is: 4 /√15 = 1.0328.
Use the central limit theorem to answer questions
about probabilities.
• For example, if a given population has a mean of 8 and a standard deviation of 4, what
is the probability that a given sample of size 15 has a mean less than or equal to 7?

• To answer this question, we can use the NORM.DIST() function in Excel, which uses
the following syntax: NORM.DIST(x, mean, standard_dev, cumulative)
where:
• x: the sample mean you’d like to test
• mean: expected mean of sampling distribution
• standard_dev: expected standard deviation of sampling distribution
• cumulative: TRUE returns the value of the normal CDF; FALSE returns the value of the
normal PDF. In our case, we will always use TRUE.
This tells us that for
a population with a
mean of 8 and a
standard deviation
of 4, the probability
that a given sample
of size 15 has a
mean less than or
equal to 7 is 0.1665.
• We can also find the probability
that a given sample size has a
mean greater than a certain
number by simply using the
formula 1 – NORM.DIST().

• For example, the following

formula shows how to find the
probability that a given sample
size of 15 has a mean greater
than 7:
• We can find the probability that a
given sample size will have a
mean between two numbers by
using the
formula NORM.DIST(larger
number) – NORM.DIST(smaller
number).

• For example, the following formula

shows how to find the probability
that a given sample size of 15 has
a mean between 7 and 9:
You Tube Resources
Application of Central Limit Theorem in real-world situation:
• https://www.youtube.com/watch?v=N7wW1dlmMaE

What is Central Limit Theorem | Inferential Statistics | Probability

And Statistics
• https://www.youtube.com/watch?v=9Fmu3H2dKDA