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Q1. For a large corporation, the variable component of the salary of a CEO is linked to the market performance of the company. To evaluate
Q1. For a large corporation, the variable component of the salary of a CEO is linked to the market performance of the company. To evaluate this, a market research firm has conducted the following study. For a population of large corporations, the CEO's salary (in Rs Lacs) is estimated relation to the return on equity (ROE) (in %) for a sample of 10 companies for the year 2010-11. Linear regression estimation results are shown partially in the tables below. The level of significance is set at 5%. Table 1 Regression Statistics Multiple R 0.159 R Square Observations 10 Table 2: ANOVA Of SS MS F Significance F Regression 10742.5 0.7 Residual 416318.4 Total 427060.9 Table 3: ESTIMATION Coefficients Standard t Stat P-value Error Intercept 967.074 206.738 4.678 0.002 ROE 5.582 12.286 0.454 0.662 Basis the outcome, the team has found that the salary is not linked to the market performance of the respective companies. Justify this by answering the following question. (2*5=10 marks) a) Calculate Rin Table 1 and interpret it. Further, explain the meaning of adjusted R square. b) Formulate the null and alternative hypothesis underlying F-stat in Table 2. c) Calculate F-stat in Table 2 and test for its significance. d) Interpret the estimated regression equation. Also interpret the P value corresponding to ROE in table 3. e) What is the value of correlation for the above problem. Interpret the meaning of this value. Further calculate the CEO salary for the 5th company
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