Calculation of internal rate of return-capital asset pricing

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Reference no: EM131282936

A company hired 25 financial consults out of a pool of 100. At the time of hiring the company used a 50 items test consisting of various questions related to financial analysis such as forecasting, calculation of internal rate of return, capital asset pricing model, etc. Those that obtained 70% or more were further subjected to interview and then finally the company hired these 25 people. Six months later, the company realized that 5 of the 25 people were not performing up to the expectations and had to terminate them. Prior to the use of 50-items financial analysis test, the provider of the test had indicated a predictive validity of 0.43 (between test performance and on the job performance). When the company did its own analysis with the 25 candidates that were hired, the same validity coefficient turned out to be 0.35. Based on the above information:

What is the rate of selection error in this case? What information is missing?

Based on the validity coefficient provided by the test provider and your own analysis within the company, what advice would you give the company about the continued use of the test?

Reference no: EM131282936

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