Chapter 14.2, Problem 10E

On March 31, 2009, Ford Motor Company’s shares were trading at a 26-year low of $2.63. Ford’s board of directors gave the CEO a grant of options and restricted shares with an estimated value of $16 million. On April 26, 2011, the price of a share of Ford had increased to $15.58, and the CEO’s grant was worth $202.8 million, a gain in value of $186.8 million. The following table shows the share price in 2009 and 2011 for 10 companies, the stock-option and share grants to the CEOs in late 2008 and 2009, and the value of the options and grants in 2011. Also shown are the percentage increases in the stock price and the percentage gains in the options values (The Wall Street Journal, April 27, 2011).

Company	Stock Price 2009 ($)	Stock Price 2011 ($)	% Increase in Stock Price	Options and Grants Value 2009 ($ millions)	Options and Grants Value 2011 ($ millions)	% Gain in Options Value
Ford Motor	2.63	15.58	492	16.0	202.8	1168
Abercrombie & Fitch	23.80	70.47	196	46.2	196.1	324
Nabors Industries	9.99	32.06	221	37.2	132.2	255
Starbucks	9.99	32.06	221	12.4	75.9	512
Salesforce.com	32.73	137.61	320	7.8	67.0	759
Starwood Hotels	12.70	60.28	375	5.8	57.1	884
Caterpillar	27.96	111.94	300	4.0	47.5	1088
Oracle	18.07	34.97	94	61.9	97.5	58
Capital One	12.24	54.61	346	6.0	40.6	577
Dow Chemical	8.43	39.97	374	5.0	38.8	676

1. a. Develop a scatter diagram for these data with the percentage increase in the stock price as the independent variable.
2. b. What does the scatter diagram developed in part (a) indicate about the relationship between the two variables?
3. c. Develop the least squares estimated regression equation.
4. d. Provide an interpretation for the slope of the estimated regression equation.
5. e. Do the rewards for the CEO appear to be based on performance increases as measured by the stock price?