“Do the best you can until you know better.

Then when you know better, do better”

~ Unknown
Hypothesis testing

2
Hypothesis testing

3
T-Distribution

4
Condition for 1 sample t-test

T-test was developed in 1908 by William Sealy Gosset 5

1 sample t-test

6
1 sample t-test

7
Question 1

Question 1: A manufacturer produce soft drink and sell it in cans of 300 ml. To test if the filling machine is
dispensing 300 ml of fluid a test was conducted. A sample of 16 cans was collected and the average value of fluid
filled in can for the sample was 299.6 ml, with sample standard deviation of 0.585 ml. Test the hypothesis at an α of
0.05.
Solution
Step 1: Write the hypothesis Step 2: Determine the value of “n”, “α”, µ, and x̄
Sample (n): 16 µ : 300 s: 0.585
DF: 16-1=15 x̄ : 299.6 α : 1-0.95 = 0.05

Step 3: Choice of test? Step 4: Formula used

One sample t- test t = x̄ – µ

S/(√n)

8
9
Question 1

Question 1: A manufacturer produce soft drink and sell it in cans of 300 ml. To test if the filling machine is
dispensing 300 ml of fluid a test was conducted. A sample of 16 cans was collected and the average value of fluid
filled in can for the sample was 299.6 ml, with sample standard deviation of 0.585 ml. Test the hypothesis at an α of
0.05.
Solution
Step 1: Write the hypothesis Step 2: Determine the value of “n”, “α”, µ, and x̄
Ho: µ =300 ml Sample (n): 16 µ : 300 s: 0.585
DF: 16-1=15 x̄ : 299.6 α : 1-0.95 = 0.05
H1: µ ≠ 300 ml

Step 3: Choice of test? Step 4: Formula used

One sample t- test t = x̄ – µ

S/(√n)

10
11
Question 1:

Step 5: Determine t- Statistics

t (observed) = X–µ
S/(√n)
= 299.6 – 300
0.585/(√16)
= -0.4
0.585/4
= -0.73 Df= 15

2.602 < 2.735 < 2.947 @ DF: 15

t.01 t.005
α/2 = 0.025
0.005 < P (t) < 0.01 α/2 = 0.025

OR
0.01 < P (t) < 0.02 Considering 2 tailed test
Conclusion: P-value < 0.05 (α) hence we reject Ho
12
 Question 1: Using critical value method

Step 5: Determine t- Statistics 0.95

t (observed) = X–µ
S/(√n)
= 299.6 – 300
0.585/(√16)
= -0.4
0.585/4
= -2.735 Df= 15

T= -2.735 α/2 = 0.025 α/2 = 0.025

Conclusion: Since t (observed) is outside the
Considering 2 tailed test
critical limit, hence reject Ho

T= -2.131 T= 2.131
@ DF: 15 @ DF: 15
@ α = 0.025 @ α = 0.025
13
 Question 1: Using critical value method

Step 5: Determine t- Statistics 0.95

t (observed) = X–µ
S/(√n)
= -0.733

Df= 15

α/2 = 0.025 α/2 = 0.025

Conclusion: Since t (observed) is within the T= -0.733
Considering 2 tailed test
critical points, hence we fail to reject Ho

T= -2.131 T= 2.131
@ DF: 15 @ DF: 15
@ α = 0.025 @ α = 0.025
14
15
Question 2

Question 2: A manufacturer claims average life of a battery is 102.5 hours. To test the assumption a sample of 25
batteries was taken. Average life of batteries in the sample was measured to be 107 hours, with sample standard
deviation of 10 hours. Test the hypothesis at an α of 0.05.

Solution
Step 1: Write the hypothesis Step 2: Determine the value of “n”, “α”, µ, and x̄
Sample (n): 25 µ : 102.5 s: 10
DF: 25-1=24 x̄ : 107 α : 1-0.95 = 0.05

Step 3: Choice of test? Step 4: Formula used

One sample t- test t = x̄ – µ

S/(√n)

16
17
Question 2

Question 2: A manufacturer claims average life of a battery is 102.5 hours. To test the assumption a sample of 25
batteries was taken. Average life of batteries in the sample was measured to be 107 hours, with sample standard
deviation of 10 hours. Test the hypothesis at an α of 0.05.

Solution
Step 1: Write the hypothesis Step 2: Determine the value of “n”, “α”, µ, and x̄
Ho: µ =102.5 hours Sample (n): 25 µ : 102.5 s: 10
DF: 25-1=24 x̄ : 107 α : 1-0.95 = 0.05
H1: µ ≠ 102.5 hours

Step 3: Choice of test? Step 4: Formula used

One sample t- test t = x̄ – µ

S/(√n)

18
19
Question 2:

Step 5: Determine t- Statistics

t (observed) = X–µ
S/(√n)
= 107 – 102.5
10/(√25)
= 4.5
10/(5)
= 2.25 Df= 24

2.064 < 2.25 < 2.492 @ DF: 24

t.025 t.010
α/2 = 0.025 α/2 = 0.025
0.01 < P (t) < 0.025
OR
0.02 < P (t) < 0.05
Conclusion: P-value < 0.05 (α) hence we reject Ho
20
 Question 2: Using critical value method

Step 5: Determine t- Statistics 0.95

t (observed) = X–µ
S/(√n)
= 107 – 102.5
10/(√25)
= 4.5
10/(5)
= 2.25 Df= 24

T= 2.25
α/2 = 0.025
α/2 = 0.025
Conclusion: Since t (observed) is outside the
Considering 2 tailed test
critical limit, hence reject Ho

T= -2.064 T= 2.064
@ DF: 24 @ DF: 24
@ α = 0.025 @ α = 0.025
21
Question 3

Question 3: The average IQ of the adult population is 100. A researcher believes the average IQ of the adults is
lower. A random sample of 5 adults are tested and scored 69,79,89,99, and 109 with a sample standard deviation of
15.81. Is there enough evidence to suggests that average IQ level is lower .Test the hypothesis at an α of 0.05.

Solution
Step 1: Write the hypothesis Step 2: Determine the value of “n”, “α”, µ, and x̄
Sample (n): 5 µ : 100 s: 15.81
DF: 5-1=4 x̄ : 89 α : 1-0.95 = 0.05

Step 3: Choice of test? Step 4: Formula used

One sample t- test t = x̄ – µ

S/(√n)

22
23
Question 3

Question 3: The average IQ of the adult population is 100. A researcher believes the average IQ of the adults is
lower. A random sample of 5 adults are tested and scored 69,79,89,99, and 109 with a sample standard deviation of
15.81. Is there enough evidence to suggests that average IQ level is lower .Test the hypothesis at an α of 0.05.

Solution
Step 1: Write the hypothesis Step 2: Determine the value of “n”, “α”, µ, and x̄
Ho: µ ≥100 Sample (n): 5 µ : 100 s: 15.81
DF: 5-1=4 x̄ : 89 α : 1-0.95 = 0.05
H1: µ < 100

Step 3: Choice of test? Step 4: Formula used

One sample t- test t = x̄ – µ

S/(√n)

24
Question 3:

Step 5: Determine t- Statistics

t (observed) = x̄ – µ
S/(√n)
= 89 – 100
15.81/(√5)
= -11
6.71
= -1.64 Df= 4

1.533 < 1.64 < 2.132 @ DF: 4

t.1 t.050

0.05 < P (t) < 0.1

Conclusion: P-value > 0.05 (α) hence we fail to reject Ho

25
T-Distribution

26
Question 3: Using critical value method

Step 5: Determine t- Statistics

t (observed) = x̄ – µ
S/(√n)
= 89 – 100
15.81/(√5)
= -11
7.07
O.95
= -1.56 Df= 4
O.05

T = -2.132
T = -1.56
@ DF: 4
@ α = 0.05
Conclusion: Since t (observed) is within the critical limit, hence we fail to reject Ho
27
Confidence Interval

28
Question 4: Confidence Interval

Question 4. A stock market analyst wants to estimate the average return on a certain stock. A random sample of 15
days yields an average (annualized) return of 10.37% and a standard deviation of s 3.5%. Assuming a normal
population of returns, give a 95% confidence interval for the average return on this stock.

Solution

Information available
Sample (n): 15 x̄ : 10.37% α : 1-0.95 = 0.05

DF: 15-1=14 s: 3.5%

What we have to estimate? The average return on a certain stock

Formula used

29
Question 4: Confidence Interval

x̄ : 10.37% CI= 10.37 ± 2.145 x 2.5%

√15
s: 3.5% CI= 10.37 ± 2.145 x 3.5%
√15
Sample (n): 15
CI= 10.37 ± 1.938
DF: 15-1=14
CI (@ α = 0.05)= {8.43%, 12.3%}
α : 1-0.95 = 0.05

30
Question 5: Confidence Interval

Question 5: The following is a random sample of the wealth, in billions of U.S. dollars, of individuals listed on the

Forbes “Billionaires” list for 2007.

2.1, 5.8, 7.3, 33.0, 2.0, 8.4, 11.0, 18.4, 4.3, 4.5, 6.0, 13.3, 12.8, 3.6, 2.4, 1.0

Construct a 90% confidence interval for the average wealth in $ billions for the people on the Forbes list.

31