Question

The accompanying data represent the total compensation for 12 randomly selected chief executive officers (CEO) and the company's stock performance in a recent year. Complete parts (a) through (d) below. Click the icon to view the CEO data. (a) One would think that a higher stock return would lead to a higher compensation. Based on this, what would likely be the explanatory variable? O O Stock return Compensation (b) Draw a scatter diagram of the data. Use the result from part (a) to determine the explanatory variable. Choose the correct graph below. ОА. OB. OC. OD. Stock Return Compensation Compensation Stock Return to 160 160 Compensation Stock Return Stock Return Compensation (c) Determine the linear correlation coefficient between compensation and stock return. (Round to three decimal places as needed.)

Answer 1

a)

Stock return

О В.

1971 14.59 4.09 7.12 109 -NOOR EN 75.46 64.05 142.05 32.71 10.69 30.65 0.77 69.43 58.68 55.93 24.33 32.22 596.97 49.748 3.72 12.04 7.62 8.45 4.03 20.89 6.66 92.29 7.69 (x-2) 661.1327 204.5615 8519.7515 290.2764 1525.4883 364.7145 2398.7955 387.4008 79.7896 38.2233 646.0493 307.2133 15423.3966 SSX 47.60 12.97 0.33 43.57 32.50 15.77 18.92 0.01 0.58 13.40 174.22 1.06 360.91 SSY 177.3948 -51.5009 -52.6893 112.4617 222.6603 75.8330 -213.0113 -1.3942 6.7813 -22.6331 -335.4898 18.0679 -63.5197 SXY Total Mean

c)

correlation coefficient r=

Sxy/(√Sxx*Syy) =

-0.027

d)

The linear correlation coefficient is close to vso no linear relation exists between compensation and stock return. It appears that stock performance plays no role in determining the compensation of a CEO.