The issues surrounding the levels and structure of executive compensation have g

Question

The issues surrounding the levels and structure of executive compensation have gained added prominence in the wake of the financial crisis that erupted in the fall of 2008. Based on the 2006 compensation data obtained from the Securities and Exchange Commission (SEC) website, it was determined that the mean and the standard deviation of compensation for the 524 highest paid CEOs in publicly traded U.S. companies are $10.82 million and $10.25 million, respectively. An analyst randomly chooses 46 CEO compensations from 2006 for analysis. Calculate the standard error of the sample mean. The standard error of the mean is ____________ million dollars.

Explanation / Answer

The standard error of the mean is

sigma(X) = sigma/sqrt(n) [sqrt[(N-n)/(N-1)]]

sigma(X) = 10.25/sqrt(46)*(sqrt((524-46)/(524-1)))

= 1.6535 million dollars.

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