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?

Answer 1

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 %