Answer :
Answer:
0.0268 = 2.68% probability that the sample average is greater than $229,500
Step-by-step explanation:
To solve this question, we need to understand the normal probability distribution and the central limit theorem.
Normal probability distribution
When the distribution is normal, we use the z-score formula.
In a set with mean [tex]\mu[/tex] and standard deviation [tex]\sigma[/tex], the zscore of a measure X is given by:
[tex]Z = \frac{X - \mu}{\sigma}[/tex]
The Z-score measures how many standard deviations the measure is from the mean. After finding the Z-score, we look at the z-score table and find the p-value associated with this z-score. This p-value is the probability that the value of the measure is smaller than X, that is, the percentile of X. Subtracting 1 by the pvalue, we get the probability that the value of the measure is greater than X.
Central Limit Theorem
The Central Limit Theorem estabilishes that, for a normally distributed random variable X, with mean [tex]\mu[/tex] and standard deviation [tex]\sigma[/tex], the sampling distribution of the sample means with size n can be approximated to a normal distribution with mean [tex]\mu[/tex] and standard deviation [tex]s = \frac{\sigma}{\sqrt{n}}[/tex].
For a skewed variable, the Central Limit Theorem can also be applied, as long as n is at least 30.
Single house:
The mean appraised value of a house in this subdivision for all houses is $228,000, with a standard deviation of $8,500, which means that [tex]\mu = 228, \sigma = 8.5[/tex]
Sample:
Sample of 120, so, by the central limit theorem, [tex]n = 120, s = \frac{8.5}{\sqrt{120}} = 0.7759[/tex]
What is the probability that the sample average is greater than $229,500?
This is 1 subtracted by the pvalue of Z when X = 229.5. So
[tex]Z = \frac{X - \mu}{\sigma}[/tex]
By the Central Limit Theorem
[tex]Z = \frac{X - \mu}{s}[/tex]
[tex]Z = \frac{229.5 - 228}{0.7759}[/tex]
[tex]Z = 1.93[/tex]
[tex]Z = 1.93[/tex] has a pvalue of 0.9732
1 - 0.9732 = 0.0268
0.0268 = 2.68% probability that the sample average is greater than $229,500