Compensation ($ millions) Stock Return (%) 26.29 6.08 12.97 30.67 19.36 31.29 13
ID: 2909354 • Letter: C
Question
Compensation ($ millions) Stock Return (%)
26.29 6.08
12.97 30.67
19.36 31.29
13.69 79.91
11.88 -8.33
12.29 2.53
26.63 4.07
14.93 10.77
17.81 4.49
14.04 11.58
Critical Values for Correlation Coefficient
n
3 0.997
4 0.950
5 0.878
6 0.811
7 0.754
8 0.707
9 0.666
10 0.632
11 0.602
12 0.576
13 0.553
14 0.532
15 0.514
16 0.497
17 0.482
18 0.468
19 0.456
20 0.444
21 0.433
22 0.423
23 0.413
24 0.404
25 0.396
26 0.388
27 0.381
28 0.374
29 0.367
30 0.361
n
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
requals=negative 0.1910?0.1910.
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?
Explanation / Answer
Critical correlation value for n = 10:
r = 0.632
Since magnitude of observed correlation (-0.191) is less 0.632, correlation is not significant.
Hence,
Predicted stock return for a company whose CEO made $ 15 million
= Predicted stock return for a company whose CEP made $ 25 million
= Mean of Returns
= 17.306 %
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