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Fundamentals of Statistics | 4th Edition | ISBN: 9780321838704 | Authors: Michael Sullivan,III
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Chapter 3, Problem 25AYU

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QUESTION:

CEO Performance (Refer to Problem CEO Performance) The following data represent the total compensation for 10 randomly selected chief executive officers (CEO) and the company’s stock performance in 2009.

(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?

(b) Draw a scatter diagram of the data.

(c) Determine the linear correlation coefficient between compensation and stock return.

(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?

Questions & Answers

QUESTION:

CEO Performance (Refer to Problem CEO Performance) The following data represent the total compensation for 10 randomly selected chief executive officers (CEO) and the company’s stock performance in 2009.

(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?

(b) Draw a scatter diagram of the data.

(c) Determine the linear correlation coefficient between compensation and stock return.

(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?

ANSWER:

Answer :

Step 1

a) The given data represents the compensation of 10 randomly selected CEOs and the company’s stock performance.the total compensation of CEO is the explanatory variable,x and the company stock's performance is the response variable,y.

x

y

26.35

5.91

12.48

30.39

19.44

31.76

13.37

79.76

12.21

-8.40

11.89

2.69

26.21

4.53

14.95

10.80

17.57

4.01

14.36

11.76

b)

The scatter plot shows there is no linear relationship between CEO compensation and company stock return .therefore the least square regression based confidence and prediction interval would not make sense.

c)

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