To Determine Whether the Cash Bonus Paid by a Company

question 66

Essay

To determine whether the cash bonus paid by a company is related to annual pay, data were gathered for 10 loan officers at AMC Bank who received cash bonuses in 2012. The data, scatterplot, and summary statistics are shown below. $$\begin{array} { | l | l | l | } \hline & \text { ANNUAL PAY } & \text { CASH BONUS } \\\hline & \$ 70609 & \$ 11225 \\\hline & \$ 58487 & \$ 6238 \\\hline & \$ 104561 & \$ 14194 \\\hline & \$ 43922 & \$ 4188 \\\hline & \$ 82613 & \$ 11863 \\\hline & \$ 116250 & \$ 13671 \\\hline & \$ 76751 & \$ 7758 \\\hline & \$ 68513 & \$ 20760 \\\hline \text { Mean } & \$ 137000 & \$ 55000 \\\hline \text { Standard Deviation } & \$ 94469 & \$ 34368 \\\hline & & \$ 17927 \\\hline \text { Correlation } & \$ 85318 & \$ 15618 \\\hline\end{array}$$ Model a linear relationship with a least squares regression model.
-Estimate the linear regression model that relates the response variable (cash bonus) to the predictor variable (annual pay).
A. Find the slope of the regression line.
b. Find the intercept of the regression line.
c. Write the equation of the linear model.

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Definitions:

Expected Inflation

The rate at which the general level of prices for goods and services is rising, and subsequently, purchasing power is falling, as anticipated by consumers, investors, and economists.

Cost of Capital

The Cost of Capital is the cost of a company's funds (both debt and equity), or, from an investor's point of view, the required rate of return on a portfolio company's existing securities.

Specific Financing

Financing that is intended for a particular purpose or project, with clear specifications and usually backed by specific collateral.

After-Tax Cost

The expense of any financial obligation or investment after accounting for the effects of taxes.