Bank Loans

Use the data from Example 11 to construct a 95% confidence interval for the difference in population mean debt-to-income ratio. Use the pooled variance method.

Solution

The confidence interval for using the pooled variance method is given by the following formula:

where is found using degrees of freedom. Similar to Example 11, we use because is not in the table. So, we have . Thus, our 95% confidence interval is:

We are 95% confident that the difference in population mean debt-to-income ratios, lies between −0.09 and −0.01.

Exercises 23 and 24.