Suppose You Hypothesized That the Average Salary in the Company

question 28

Multiple Choice

Suppose you hypothesized that the average salary in the company is $75,000. You then collect a sample of salaries for employees of the company. Using statistical theory, you know that, if the average salary is $75,000, then the probability that your sample average is above $90,000 or below $60,000 is 0.05. If you observe an average salary of $91,000:

• A) you make the inductive argument that the probability that your sample average is above $90,000 or below $60,000 is not 0.05. The strength of this argument is 5%.
• B) you make the deductive argument that the probability that your sample average is above $90,000 or below $60,000 is not 0.05. The strength of this argument is 95%.
• C) you make the inductive argument that the average salary in the company is not $75,000. The strength of this argument is 95%.
• D) None of the answers is correct.

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Definitions:

Retained Earnings

The portion of net profits not distributed as dividends to shareholders, but retained by the company for reinvestment in its core business or to pay debt.

Net Income

The amount of earnings left over after a company has paid all of its expenses and income taxes, indicating its profitability during a specific period, rephrased to provide a fresh perspective.

Cost of Equity

The return a company requires to decide if an investment meets its capital return criteria, essentially what it compensates investors.

Weighted Average

A calculation that takes into account the varying degrees of importance of the numbers in a data set by multiplying each value by a predetermined weight before averaging.