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.

(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? 

•  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.

(c) Determine the linear correlation coefficient between compensation and stock return. Round to three decimal places as needed.)

(d) Does a linear relation exist between compensation and stock return? Does stock performance appear to play a role in determining the compensation of a CEO? The linear correlation coefficient is close to _______  so _______  linear relation exists between compensation and stock return. It appears that stock performance plays _______  role in determining the compensation of a CEO.

Answer 1

a) As stock return is deciding the compensation here, Stock return is the explanatory variable here.

b) Scatter diagram of Compensation vs stock return looks as follows. Hence, C is the correct option.

c) Linear correlation, r = CORREL(Compensation, Stock Return) = -0.021

d) The linear correlation is close to 0 so no linear relation exists between compensation and stock return.  

It appears that stock performance plays no role in determining the compensation of a CEO