3. A 90% confidence interval for the mean of a population based on the information in a sample always implies that there is a 90% chance that the
A. Estimate is equal to the true population mean.
B. True population mean is no larger than the largest endpoint of the interval.
C. Standard deviation will not be any greater than 10% of the population mean.
D. True population mean lies within the specified confidence interval.
ANSWER (D) is correct.
REQUIRED: The meaning of a confidence interval.
DISCUSSION: The confidence level, e.g., 90%, is specified by the auditor. A confidence interval based on the specified confidence level, also called precision, is the range around a sample value that is expected to contain the true population value. In this situation, if the population is normally distributed and repeated simple random samples are taken, the probability is that 90% of the confidence intervals constructed around the sample results will contain the population value.
Answer (A) is incorrect. Computation of a confidence interval permits the probability that the interval contains the population value to be quantified.
Answer (B) is incorrect. Two-sided confidence intervals are more common. The area in each tail of a two-sided 90% level is 5%.
Answer (C) is incorrect. The confidence interval is based on the standard deviation, but it has no bearing on the size of the standard deviation.