The given data represent the total compensation for 10 randomly selected CEOs an

Question

The given data represent the total compensation for 10 randomly selected CEOs and their company's stock performance in 2009. Analysis of this data reveals a correlation coefficient of r = 0.1832.

What would be the predicted stock return for a company whose CEO made $15 million? What would be the predicted stock return for a company whose CEO made$25 million?

What would be the predicted stock return (%) for a company whose CEO made $15 million?

Compensation (millions of dollars) Stock Return (%) 26.26 6.09 12.78 30.52 19.67 32.09 13.43 79.33 12.29 -8.74 11.46 2.43 26.38 4.76 14.75 10.47 17.39 4.28 14.37 11.78

Explanation / Answer

For n = 10, the critical value of correlation coefficient assuming 0.05 level of singificance:

r = + 0.632

Given correlation = -0.1832

Since |-0.1832| < |0.632|, we do not reject the null hypothesis and hence, there is no significant correlation between the two given variables.

Hence,

Predicted stock return for a company whose CEO made $25 million

= Predicted stock return for a company whose CEO made $15 million

= Mean of stock return values

= (6.09 + 30.52 + 32.09 + 79.33 - 8.74 + 2.43 + 4.76 + 10.47 + 4.28 + 11.78) / 10

= 173.01 / 10

= 17.301 %

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