# Hwk 4 - Economics 230 Fall 2010 Homework - 4 Z.Mukherjee 1....

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Economics 230 Homework - 4 Z.Mukherjee Fall 2010 1. Consider an equation to explain salaries of CEOs in terms of annual firm sales, return on equity ( roe , in percentage form) and return on the firm’s stock ( ros , in percentage form): . ) log( ) log( 3 2 1 u ros roe sales salary o + + + + = β (i) State the null hypothesis that, after controlling for sales and roe, ros has no effect on CEO salary. State the alternative that better stock market performances increases a CEO’s salary. (ii) Using the data in CEOSAL1.RAW, the following equation was obtained by OLS: , 00024 . 0 01740 . 0 ) log( 280 . 0 32 . 4 ) log( ) 00054 . 0 ( ) 0041 . 0 ( ) 035 . 0 ( ) 32 . 0 ( ros roe sales salary + + + = . 283 . 0 , 209 2 = = R n By what percentage is salary predicted to increase if ros increases by 50 points? Does ros have a practically large effect on salary? (iii) Test the null hypothesis that ros has no effect on salary against the alternative that ros has a positive effect. Carry out the test at the 10% significance level.

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## This note was uploaded on 01/30/2011 for the course ECON 230 taught by Professor Pm during the Spring '10 term at Conn College.

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Hwk 4 - Economics 230 Fall 2010 Homework - 4 Z.Mukherjee 1....

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