Time-Series Forecasting and Index Numbers: Learning Objectives

Students Solutions Manual and Study Guide: Chapter 15
Page 1
Chapter 15
Time-Series Forecasting and Index Numbers
LEARNING OBJECTIVES
This chapter discusses the general use of forecasting in business, several tools that
are available for making business forecasts, the nature of time-series data, and the
role of index numbers in business, thereby enabling you to:
1.
2.
3.
4.
5.
6.
Differentiate among various measurements of forecasting error, including mean

absolute deviation and mean square error, in order to assess which forecasting
method to use
Describe smoothing techniques for forecasting models, including nave, simple
average, moving average, weighted moving average, and exponential smoothing
Determine trend in time-series data by using linear regression trend analysis,
quadratic model trend analysis, and Holts two-parameter exponential smoothing
method
Account for seasonal effects of time-series data by using decomposition and
Winters three-parameter exponential smoothing method
Test for autocorrelation using the Durbin-Watson test, overcoming it by adding
independent variables and transforming variables and taking advantage of it
with autoregression
Differentiate among simple index numbers, unweighted aggregate price index
numbers, weighted aggregate price index numbers, Laspeyres price index
numbers, and Paasche price index numbers by defining and calculating each
CHAPTER OUTLINE
15.1 Introduction to Forecasting
Time-Series Components
The Measurement of Forecasting Error
Error
Mean Absolute Deviation (MAD)
Mean Square Error (MSE)
15.2 Smoothing Techniques
Nave Forecasting Models
Averaging Models
Simple Averages
Moving Averages
Weighted Moving Averages
Exponential Smoothing
15.3 Trend Analysis
Linear Regression Trend Analysis
Regression Trend Analysis Using Quadratic Models
Holts Two-Parameter Exponential Smoothing Method
15.4 Seasonal Effects
Decomposition
Finding Seasonal Effects with the Computer
Winters Three-Parameter Exponential Smoothing Method
15.5 Autocorrelation and Autoregression
Autocorrelation
Ways to Overcome the Autocorrelation Problem
Addition of Independent Variables
Transforming Variables
Autoregression
15.6 Index Numbers
Simple Index Numbers
Unweighted Aggregate Price Indexes
Weighted Price Index Numbers
Laspeyres Price Index
Paasche Price Index
Page 2
Page 3
KEY TERMS
Autocorrelation
Autoregression
Averaging Models
Cycles
Cyclical Effects
Decomposition
Deseasonalized Data
Durbin-Watson Test
Error of an Individual Forecast
Exponential Smoothing
First-Difference Approach
Forecasting
Forecasting Error
Index Number
Irregular Fluctuations
Laspeyres Price Index
Mean Absolute Deviation (MAD)
Mean Squared Error (MSE)
Moving Average
Nave Forecasting Methods
Paasche Price Index
Seasonal Effects
Serial Correlation
Simple Average
Simple Average Model
Simple Index Number
Smoothing Techniques
Stationary
Time-Series Data
Trend
Unweighted Aggregate Price
Index Number
Weighted Aggregate Price
Index Number
Weighted Moving Average
Page 4
STUDY QUESTIONS
1. Shown below are the forecast values and actual values for six months of data:
Month
Actual Values
June
July
Aug.
Sept.
Oct.
Nov.
29
51
60
57
48
53
Forecast Values
40
37
49
55
56
52
The mean absolute deviation of forecasts for these data is __________. The mean square
error is __________________.
2. Data gathered on a given characteristic over a period of time at regular intervals are referred
to as ____________________________.
3. Time series data are thought to contain four elements: _______________, _______________,
_______________, and _______________.
4. Patterns of data behavior that occur in periods of time of less than 1 year are called
_____________________ effects.
5. Long-term time series effects are usually referred to as _______________.
6. Patterns of data behavior that occur in periods of time of more than 1 years are called
_______________________ effects.
7. Consider the time series data below. The equation of the trend line to fit these data is
__________________________________.
Year
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Sales
28
31
39
50
55
58
66
72
78
90
97
104
112
Page 5
8. Time series data are deseasonalized by dividing the each data value by its associated value of
____________.
9. Perhaps the simplest of the time series forecasting techniques are
____________________________ models in which it is assumed that more recent time
periods of data represent the best predictions.
10. Consider the time-series data shown below:
Month
Volume
Jan.
Feb.
Mar.
Apr.
May
1230
1211
1204
1189
1195
The forecast volumes for April, May, and June are _______, _______, and _______ using a
three-month moving average on the data shown above and starting in January. Suppose a
three-month weighted moving average is used to predict volume figures for April, May, and
June. The weights on the moving average are 3 for the most current month, 2 for the month
before, and 1 for the other month. The forecasts for April, May, and June are _______,
_______, and _______._ using a three-month moving average starting in January.
11. Consider the data below:
Month
Jan.
Feb.
Mar.
Apr.
May
Volume
1230
1211
1204
1189
1195
If exponential smoothing is used to forecast the Volume for May using = .2 and using the
January actual figure as the forecast for February, the forecast is ____________________. If
= .5 is used, the forecast is ___________________. If = .7 is used, the forecast is
_____________________. The alpha value of ________ produced the smallest error of
forecast.
12. ____________________________ occurs when the error terms of a regression forecasting
model are correlated. Another name for this is _____________________________.
13. The Durbin-Watson statistic is used to test for ______________________________.
Page 6
14. Examine the data given below.

Year
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
126
203
211
223
238
255
269
271
276
286
289
294
305
311
324
338
34
51
60
57
64
66
80
93
92
97
101
108
110
107
109
116
The simple regression forecasting model developed from this data is

______________________. The value of R2 for this model is _________________. The
Durbin-Watson D statistic for this model is __________________. The critical value of
dL for this model using = .05 is _____________ and the critical value of dU for this
model is _____________. This model (does, does not, inconclusive) _______________
contain significant autocorrelation.
15. One way to overcome the autocorrelation problem is to add __________________________
to the analysis. Another way to overcome the autocorrelation problem is to transform
variables. One such method is the ___________________________________ approach.
16. A forecasting technique that takes advantage of the relationship of values to previous period
values is ______________________________. This technique is a multiple regression
technique where the independent variables are time-lagged versions of the dependent
variable.
Page 7
17. Examine the price figures shown below for various years.
Year
2005
2006
2007
2008
2009
Price
23.8
47.3
49.1
55.6
53.0
The simple index number for 2008 using 2005 as a base year is _________________.
The simple index number for 2009 using 2006 as a base year is _________________.
18. Examine the price figures given below for four commodities.
Item
1
2
3
Year
2000
1.89
.41
.76
2007
1.90
.48
.73
2008
1.87
.55
.79
2009
1.84
.69
.82
The unweighted aggregate price index for 2007 using 2000 as a base year is
________________. The unweighted aggregate price index for 2008 using 2000 as
a base year is __________. The unweighted aggregate price index for 2009 using
2000 as a base year is _______________.
19. Weighted aggregate price indexes that are computed by using the quantities for the year of
interest rather than the base year are called __________________________ price indexes.
20. Weighted aggregate price indexes that are computed by using the quantities for the base year
are called ____________________________ price indexes.
21. Examine the data below.
Item
1
2
3
4
Quantity Quantity Price Price

2007
2009 2007 2009
23
27
1.33 1.45
8
6
5.10 4.89
61
72
.27
.29
17
24
1.88
2.11
Using 2007 as the base year

The Laspeyres price index for 2009 is _____________________.
The Paasche price index for 2009 is ______________________.
Page 8
ANSWERS TO STUDY QUESTIONS
1. 7.83, 84.5,
13. Autocorrelation
2. Time Series Data
14.
y 93.602 2.023x , .916,

1.004, 1.10, 1.37, Does
3. Seasonal, Cyclical, Trend, Irregular

4. Seasonal
15. Independent Variables,

First-Differences
5. Trend
16. Autoregression
6. Cyclical
17. 233.6, 112.05
7. y = -14,030.35 + 7.038462 x
18. 101.6, 104.9, 109.5
8. S
19. Paasche
9. Naive Forecasting
20. Laspeyres
10. 1215, 1201.3, 1196, 1210.7,

1197.7, 1194.5
11. 1215.21, 1200.63, 1194.64, .7
12. Autocorrelation, Serial Correlation
21. 105.18, 106.82
Page 9
SOLUTIONS TO PROBLEMS IN CHAPTER 15
15.1
Period
1
2
3
4
5
6
7
8
9
Total
MAD =
MSE =
15.3
e
no. forecasts
12.30
= 1.367
9
20.43
= 2.27
9
no. forecasts
Period Value F
1
2
3
4
5
6
e2
5.29
2.56
1.96
1.21
0.09
0.81
3.61
4.41
0.49
20.43
e
2.30
1.60
1.40
1.10
0.30
0.90
1.90
2.10
0.70
12.30
e
2.30
1.60
-1.40
1.10
0.30
-0.90
-1.90
-2.10
0.70
-0.30
19.4 16.6 2.8

23.6 19.1 4.5
24.0 22.0 2.0
26.8 24.8 2.0
29.2 25.9 3.3
35.5 28.6 6.9
Total
21.5
MAD =
MSE =
2.8
7.84
4.5 20.25
2.0
4.00
2.0
4.00
3.3 10.89
6.9 47.61
21.5 94.59
e
No.Forecasts
e2
215
.
= 3.583
6
94.59
= 15.765
6
No.Forecasts
15.5
a.)
b.)
c.)
Page 10
4-mo. mov. avg.

44.75
52.75
61.50
64.75
70.50
81.00
error
14.25
13.25
9.50
21.25
30.50
16.00
4-mo. wt. mov. avg. error

53.25
5.75
56.375
9.625
62.875
8.125
67.25
18.75
76.375
24.625
89.125
7.875
difference in errors
14.25 - 5.75 = 8.5
3.626
1.375
2.5
5.875
8.125
In each time period, the four-month moving average produces greater errors of
forecast than the four-month weighted moving average.
15.7
Period
1
2
3
4
5
6
7
8
9
Value
9.4
8.2
7.9
9.0
9.8
11.0
10.3
9.5
9.1
=.3
Error
=.7
Error 3-mo.avg. Error
9.4
9.0
8.7
8.8
9.1
9.7
9.9
9.8
-1.2
-1.1
0.3
1.0
1.9
0.6
-0.4
-0.7
9.4
8.6
8.1
8.7
9.5
10.6
10.4
9.8
-1.2
-0.7
0.9
1.1
1.5
-0.3
-0.9
-0.7
8.5
8.4
8.9
9.9
10.4
10.3
0.5
1.4
1.1
0.4
-0.9
-1.2
15.9
Year
1
2
3
4
5
6
7
8
9
10
11
12
13
No.Issues
332
694
518
222
209
172
366
512
667
571
575
865
609
Page 11
F(=.2)
332.0
404.4
427.1
386.1
350.7
315.0
325.2
362.6
423.5
453.0
477.4
554.9
F(=.9)
362.0
113.6
205.1
177.1
178.7
51.0
186.8
304.4
147.5
122.0
387.6
54.1
332.0
657.8
532.0
253.0
213.4
176.1
347.0
495.5
649.9
578.9
575.4
836.0
362.0
139.8
310.0
44.0
41.4
189.9
165.0
171.5
78.9
3.9
289.6
227.0
e = 2289.9
For = .2, MAD =
2289.9
= 190.8
12
For = .9, MAD =
2023.0
= 168.6
12
= .9 produces a smaller mean average error.
e =2023.0
15.11 Trend line:
Page 12
Members = 145,392.3 64.6354 Year
R2 = 91.44% se = 215.1158
F = 117.365, reject the null hypothesis.
Page 13
15.13
Month
Broccoli
Jan.(yr. 1)
Feb.
Mar.
Apr.
May
June
132.5
164.8
141.2
133.8
138.4
150.9
July
146.6
Aug.
146.9
12-Mo. Mov.Tot.
2-Yr.Tot.
TC
SI
3282.8
136.78
93.30
3189.7
132.90
90.47
3085.0
128.54
92.67
3034.4
126.43
98.77
2996.7
124.86
111.09
2927.9
122.00
100.83
2857.8
119.08
113.52
2802.3
116.76
117.58
2750.6
114.61
112.36
2704.8
112.70
92.08
2682.1
111.75
99.69
2672.7
111.36
102.73
1655.2
1627.6
1562.1
Sept.
138.7
1522.9
Oct.
128.0
1511.5
Nov.
112.4
1485.2
Dec.
121.0
1442.7
Jan.(yr. 2)
104.9
1415.1
Feb.
99.3
Mar.
102.0
Apr.
122.4
May
112.1
June
108.4
1387.2
1363.4
1341.4
1340.7
1332.0
July
Aug.
Sept.
Oct.
Nov.
Dec.
119.0
119.0
114.9
106.0
111.7
112.3
15.15 Regression Analysis

The regression equation is:
Predictor
Coef
Constant
1.454756
Housing
0.460811
s = 1.0368
Food
8.5
7.8
4.1
2.3
3.7
2.3
3.3
4.0
4.1
5.7
5.8
3.6
1.4
2.1
2.3
2.8
3.2
2.6
2.2
2.2
2.3
2.8
1.5
3.6
2.7
2.3
3.3
3.0
2.4
t 1
Food = 1.454756 + 0.460811 Housing

t-ratio
p
4.27
0.0002
6.83
0.0000
R-sq = 63.4%
Housing
15.7
11.5
7.2
2.7
4.1
4.0
3.0
3.0
3.8
3.8
4.5
4.0
2.9
2.7
2.5
2.6
2.9
2.6
2.3
2.2
3.5
4.2
3.1
2.2
3.0
4.0
2.1
4.9
5.9
(e e
Page 14
Y
8.6895
6.7541
4.7726
2.6989
3.3441
3.2980
2.8372
2.8372
3.2058
3.2058
3.5284
3.2980
2.7911
2.6989
2.6068
2.6529
2.7911
2.6529
2.5146
2.4685
3.0676
3.3902
2.8833
2.4685
2.8372
3.2980
2.4225
3.7127
4.1735
R-sq(adj) = 62.0%
e
-0.1895
1.0459
-0.6726
-0.3989
0.3559
-0.9980
0.4628
1.1628
0.8942
2.4942
2.2716
0.3020
-1.3911
-0.5989
-0.3068
0.1471
0.4089
-0.0529
-0.3146
-0.2685
-0.7676
-0.5902
-1.3833
1.1315
-0.1372
-0.9980
0.8775
-0.7127
-1.7735
e2
0.0359
1.0939
0.4524
0.1592
0.1267
0.9960
0.2142
1.3521
0.7995
6.2208
5.1601
0.0912
1.9352
0.3587
0.0941
0.0216
0.1672
0.0028
0.0990
0.0721
0.5892
0.3483
1.9134
1.2802
0.0188
0.9960
0.7700
0.5080
3.1454
29.0224
et et-1
1.2354
-1.7185
0.2737
0.7549
-1.3539
1.4608
0.7000
-0.2687
1.6000
-0.2226
-1.9696
-1.6931
0.7922
0.2922
0.4539
0.2616
-0.4618
-0.2618
0.0460
-0.4991
0.1774
-0.7931
2.5147
-1.2687
-0.8608
1.8755
-1.5903
-1.0608
)2 = 1.526 + 2.953 + 0.075 + 0.570 + 1.833 + 2.134 + 0.490 +

0.072 + 2.560 + 0.050 + 3.879 + 2.867 + 0.628 + 0.085 +
0.206 + 0.069 + 0.213 + 0.069 + 0.002 + 0.249 + 0.031 +
0.629 + 6.324 + 1.609 + 0.741 + 3.518 + 2.529 + 1.125
= 37.036
Page 15
= 29.0224
Critical values of D: Using 1 independent variable, n = 29, and = .05,

dL = 1.34 and dU = 1.48
Since D = 1.28 is less than dL, the decision is to reject the null hypothesis.
There is significant autocorrelation.
Page 16
15.17 The regression equation is:

Failed Bank Assets = 1,379 + 136.68 Number of Failures
y = 21,881 (million $)
for x= 150:
R2 = 37.9%
adjusted R2 = 34.1%
se = 13,833
F = 9.78, p = .006
The Durbin Watson statistic for this model is:

D = 2.49
The critical table values for k = 1 and n = 18 are dL = 1.16 and dU = 1.39. Since
the observed value of D = 2.49 is above dU, the decision is to fail to reject the null
hypothesis. There is no significant autocorrelation.
Failed Bank Assets
8,189
104
1,862
4,137
36,394
3,034
7,609
7,538
56,620
28,507
10,739
43,552
16,915
2,588
825
753
186
27
Number of Failures
11
7
34
45
79
118
144
201
221
206
159
108
100
42
11
6
5
1
y
2,882.8
2,336.1
6,026.5
7,530.1
12,177.3
17,507.9
21,061.7
28,852.6
31,586.3
29,536.0
23,111.9
16,141.1
15,047.6
7,120.0
2,882.8
2,199.4
2,062.7
1,516.0
e
5,306.2
-2,232.1
-4,164.5
-3,393.1
24,216.7
-14,473.9
-13,452.7
-21,314.6
25,033.7
- 1,029.0
-12,372.9
27,410.9
1,867.4
- 4,532.0
- 2,057.8
- 1,446.4
- 1,876.7
- 1,489.0
e2
28,155,356
4,982,296
17,343,453
11,512,859
586,449,390
209,494,371
180,974,565
454,312,622
626,687,597
1,058,894
153,089,247
751,357,974
3,487,085
20,539,127
4,234,697
2,092,139
3,522,152
2,217,144
15.19
Starts
333.0
270.4
281.1
443.0
432.3
428.9
443.2
413.1
391.6
361.5
318.1
308.4
382.2
419.5
453.0
430.3
468.5
464.2
521.9
550.4
529.7
556.9
606.5
670.1
745.5
756.1
826.8
lag1
*
333.0
270.4
281.1
443.0
432.3
428.9
443.2
413.1
391.6
361.5
318.1
308.4
382.2
419.5
453.0
430.3
468.5
464.2
521.9
550.4
529.7
556.9
606.5
670.1
745.5
756.1
Page 17
lag2
*
*
333.0
270.4
281.1
443.0
432.3
428.9
443.2
413.1
391.6
361.5
318.1
308.4
382.2
419.5
453.0
430.3
468.5
464.2
521.9
550.4
529.7
556.9
606.5
670.1
745.5
The model with 1 lag:

Housing Starts = -8.87 + 1.06 lag 1
F = 198.67
p = .000 R2 = 89.2% adjusted R2 = 88.8% se = 48.52
The model with 2 lags:

Housing Starts = 13.66 + 1.0569 lag 2
F = 72.36
p = .000 R2 = 75.9% adjusted R2 = 74.8% Se = 70.84
The model with 1 lag is the best model with a strong R2 = 89.2%. The model
with 2 lags is relatively strong also.
15.21 Year
1950
1955
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
Price
22.45
31.40
32.33
36.50
44.90
61.24
69.75
73.44
80.05
84.61
87.28
89.56
15.23
Page 18
a.) Index1950
100.0
139.9
144.0
162.6
200.0
272.8
310.7
327.1
356.6
376.9
388.8
398.9
b.) Index1980
32.2
45.0
46.4
52.3
64.4
87.8
100.0
105.3
114.8
121.3
125.1
128.4
Year
Totals
1995
1.53
2.21
1.92
3.38
2002
1.40
2.15
2.68
3.10
2009
2.17
2.51
2.60
4.00
9.04
9.33
11.28
Index1995 =
9.04
(100) = 100.0
9.04
Index2002 =
9.33
(100) = 103.2
9.04
Index2009 =
1128
.
(100) = 124.8
9.04
15.25
Page 19
Item
Quantity
2000
Price
2000
Price
2007
Price
2008
Price
2009
1
2
3
4
21
6
17
43
0.50
1.23
0.84
0.15
0.67
1.85
0.75
0.21
0.68
1.90
0.75
0.25
0.71
1.91
0.80
0.25
P2000Q2000 P2007Q2000 P2008Q2000
Totals
P2009Q2000
10.50
7.38
14.28
6.45
14.07
11.10
12.75
9.03
14.28
11.40
12.75
10.75
14.91
11.46
13.60
10.75
38.61
46.95
49.18
50.72
46.95
(100) = 121.6
38.61
2008 2000
2000 2000
49.18
(100) = 127.4
38.61
2009 2000
2000 2000
50.72
(100) = 131.4
38.61
Index2007 =
2007 2000
2000 2000
Index2008 =
Index2009 =
15.27 a)
Page 20
The linear model:
Yield = 9.96 - 0.14 Month
F = 219.24 p = .000
R2 = 90.9
se = .3212
The quadratic model:
Yield = 10.4 - 0.252 Month + .00445 Month2
F = 176.21 p = .000
R2 = 94.4%
se = .2582
In the quadratic model, both t ratios are significant,

for x: t = - 7.93, p = .000 and for x2d: t = 3.61, p = .002
The linear model is a strong model. The quadratic term adds some
predictability but has a smaller t ratio than does the linear term.
b)
x
10.08
10.05
9.24
9.23
9.69
9.55
9.37
8.55
8.36
8.59
7.99
8.12
7.91
7.73
7.39
7.48
7.52
7.48
7.35
7.04
6.88
6.88
7.17
7.22
MAD =
F
9.65
9.55
9.43
9.46
9.29
8.96
8.72
8.37
8.27
8.15
7.94
7.79
7.63
7.53
7.47
7.46
7.35
7.19
7.04
6.99
e
.04
.00
.06
.91
.93
.37
.73
.25
.36
.42
.55
.31
.11
.05
.12
.42
.47
.31
.13
.23
e = 6.77
6.77
= .3385
20
c)
= .3
e
x
F
10.08
10.05 10.08 .03
9.24 10.07 .83
9.23 9.82 .59
9.69 9.64 .05
9.55 9.66 .11
9.37 9.63 .26
8.55 9.55 1.00
8.36 9.25 .89
8.59 8.98 .39
7.99 8.86 .87
8.12 8.60 .48
7.91 8.46 .55
7.73 8.30 .57
7.39 8.13 .74
7.48 7.91 .43
7.52 7.78 .26
7.48 7.70 .22
7.35 7.63 .28
7.04 7.55 .51
6.88 7.40 .52
6.88 7.24 .36
7.17 7.13 .04
7.22 7.14 .08
e = 10.06
MAD=.3 =
Page 21
= .7
F
10.08
10.06
9.49
9.31
9.58
9.56
9.43
8.81
8.50
8.56
8.16
8.13
7.98
7.81
7.52
7.49
7.51
7.49
7.39
7.15
6.96
6.90
7.09
e =
10.06
= .4374
23
e
.03
.82
.26
.38
.03
.19
.88
.45
.09
.57
.04
.22
.25
.42
.04
.03
.03
.14
.35
.27
.08
.27
.13
5.97
MAD=.7 =
5.97
= .2596
23
= .7 produces better forecasts based on MAD.

d).
MAD for b) .3385, c) .4374 and .2596. Exponential smoothing with = .7

produces the lowest error (.2596 from part c).
e)
TCSI
10.08
10.05
4 period
moving tots
Page 22
8 period
moving tots
TC
SI
76.81
9.60
96.25
75.92
9.49
97.26
75.55
9.44
102.65
75.00
9.38
101.81
72.99
9.12
102.74
70.70
8.84
96.72
68.36
8.55
97.78
66.55
8.32
103.25
65.67
8.21
97.32
64.36
8.05
100.87
62.90
7.86
100.64
61.66
7.71
100.26
60.63
7.58
97.49
59.99
7.50
99.73
59.70
7.46
100.80
59.22
7.40
101.08
58.14
7.27
101.10
56.90
7.11
99.02
56.12
7.02
98.01
56.12
7.02
98.01
38.60
9.24
38.21
9.23
37.71
9.69
37.84
9.55
37.16
9.37
35.83
8.55
34.87
8.36
33.49
8.59
33.06
7.99
32.61
8.12
31.75
7.91
31.15
7.73
30.51
7.39
30.12
7.48
29.87
7.52
29.83
7.48
29.39
7.35
28.75
7.04
28.15
6.88
27.97
6.88
28.15
7.17
7.22
1st Period
2nd Period
3rd Period
4th Period
Page 23
102.65 97.78 100.64

101.81 103.25 100.26
96.25 102.74 97.32
97.26 96.72 100.87
100.80 98.01
101.08 98.01
97.49 101.10
99.73 99.02
The highs and lows of each period (underlined) are eliminated and the others are
averaged resulting in:
1st
2nd
3rd
4th
total
Seasonal Indexes:
99.82
101.05
98.64
98.67
398.18
Since the total is not 400, adjust each seasonal index by multiplying by
1.004571 resulting in the final seasonal indexes of:
1st 100.28
2nd 101.51
3rd 99.09
4th 99.12
15.29
Item
1
2
3
4
5
6
Totals
2005
3.21
0.51
0.83
1.30
1.67
0.62
8.14
2006
3.37
0.55
0.90
1.32
1.72
0.67
8.53
2007
3.80
0.68
0.91
1.33
1.90
0.70
9.32
2008
3.73
0.62
1.02
1.32
1.99
0.72
9.40
Index2005 = 2005 100 =
8.14
(100)
8.14
= 100.0
8.53
(100)
8.14
= 104.8
2000
Index2006 = 2006 100 =

2000
Index2007 =
2007
2000
100 =
9.32
(100)
8.14
= 114.5
Index2008 =
2008
2000
100 =
9.40
(100)
8.14
= 115.5
Index2009 =
2009
2000
100 =
9.29
(100)
8.14
= 114.1
2009
3.65
0.59
1.06
1.30
1.98
0.71
9.29
400
=
398.18
15.31
Year
Quantity
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
6559
6022
6439
6396
6405
6391
6152
7034
7400
8761
9842
10065
10298
10209
10500
9913
9644
9952
9333
9409
9143
9512
9430
9513
10085
Page 24
b) = .2
F
a) moving average
e
F
6340.00
6285.67
6413.33
6397.33
6316.00
6525.67
6862.00
7731.67
8667.67
9556.00
10068.33
10190.67
10335.67
10207.33
10019.00
9836.33
9643.00
9564.67
9295.00
9354.67
9361.67
9485.00
56.00
119.33
22.33
245.33
718.00
874.33
1899.00
2110.33
1397.33
742.00
140.67
309.33
422.67
563.33
67.00
503.33
234.00
421.67
217.00
75.33
151.33
600.00
6022.00
6022.00
6105.40
6163.52
6211.82
6247.65
6228.52
6389.62
6591.69
7025.56
7588.84
8084.08
8526.86
8863.29
9190.63
9335.10
9396.88
9507.91
9472.93
9460.14
9396.71
9419.77
9421.82
9440.05
e =11,889.67
MADmoving average =
MAD=.2 =
c)
e
numberforecasts
e
numberforecasts
290.60
241.48
179.18
95.65
805.48
1010.38
2169.31
2816.45
2476.16
2213.93
1682.14
1636.71
722.37
308.90
555.12
174.91
63.93
317.14
115.29
10.23
91.18
644.95
e =18,621.46
11,889.67
= 540.44
22
18,62146
.
= 846.43
22
The three-year moving average produced a smaller MAD (540.44) than did
exponential smoothing with = .2 (MAD = 846.43). Using MAD as the
criterion, the three-year moving average was a better forecasting tool than the
exponential smoothing with = .2.
Page 25
15.33
Month
Chem
Jan(1)
Feb
Mar
Apr
May
June
23.701
24.189
24.200
24.971
24.560
24.992
12m tot 2yr tot
TC
SI
TCI
288.00
July
22.566
575.65
23.985
94.08
23.872
23.917
575.23
23.968
100.29
24.134
23.919
576.24
24.010
104.32
24.047
23.921
577.78
24.074
100.17
24.851
23.924
578.86
24.119
95.50
24.056
23.926
580.98
24.208
93.32
23.731
23.928
584.00
24.333
95.95
24.486
23.931
586.15
24.423
98.77
24.197
23.933
587.81
24.492
103.23
23.683
23.936
589.05
24.544
103.59
24.450
23.938
590.05
24.585
102.44
24.938
23.940
592.63
24.693
107.26
24.763
23.943
595.28
24.803
97.12
25.482
23.945
597.79
24.908
99.05
24.771
23.947
601.75
25.073
103.98
25.031
23.950
605.59
25.233
96.41
25.070
23.952
607.85
25.327
94.07
24.884
23.955
287.65
Aug
24.037
287.58
Sept
25.047
Oct
24.115
Nov
23.034
Dec
22.590
Jan(2)
23.347
288.66
289.12
289.74
291.24
292.76
Feb
24.122
293.39
Mar
25.282
294.42
Apr
25.426
294.63
May
25.185
295.42
June
26.486
297.21
July
24.088
Aug
24.672
Sept
26.072
Oct
24.328
298.07
299.72
302.03
303.56
Nov
23.826
304.29
Dec
24.373
Jan(3)
24.207
Feb
25.772
Page 26
610.56
25.440
95.81
25.605
23.957
613.27
25.553
94.73
25.388
23.959
614.89
25.620
100.59
25.852
23.962
616.92
25.705
107.34
25.846
23.964
619.39
25.808
104.46
25.924
23.966
622.48
25.937
99.93
25.666
23.969
625.24
26.052
109.24
26.608
23.971
627.35
26.140
94.95
26.257
23.974
629.12
26.213
97.51
25.663
23.976
631.53
26.314
103.44
26.131
23.978
635.31
26.471
96.90
26.432
23.981
639.84
26.660
95.98
26.725
23.983
644.03
26.835
94.54
26.652
23.985
647.65
26.985
93.82
26.551
23.988
652.98
27.208
97.16
26.517
23.990
659.95
27.498
106.72
27.490
23.992
666.46
27.769
104.37
27.871
23.995
672.57
28.024
101.43
28.145
23.997
679.39
28.308
106.50
28.187
24.000
686.66
28.611
93.48
28.294
24.002
694.30
28.929
100.13
29.082
24.004
701.34
29.223
105.34
29.554
24.007
706.29
29.429
97.16
29.466
24.009
306.27
307.00
307.89
Mar
27.591
309.03
Apr
26.958
310.36
May
June
25.920
312.12
28.460
313.12
July
24.821
314.23
Aug
25.560
Sept
27.218
Oct
25.650
Nov
25.589
Dec
25.370
314.89
316.64
318.67
321.17
322.86
Jan(4)
25.316
324.79
Feb
26.435
328.19
Mar
29.346
331.76
Apr
28.983
334.70
May
28.424
337.87
June
30.149
July
26.746
341.52
345.14
Aug
28.966
349.16
Sept
30.783
352.18
Oct
28.594
354.11
Nov
28.762
Dec
29.018
Jan(5)
28.931
Page 27
710.54
29.606
97.14
30.039
24.011
715.50
29.813
97.33
30.484
24.014
720.74
30.031
96.34
30.342
24.016
725.14
30.214
100.80
30.551
24.019
727.79
30.325
106.75
30.325
24.021
730.25
30.427
101.57
29.719
24.023
733.94
30.581
100.53
30.442
24.026
738.09
30.754
106.63
30.660
24.028
Year2
95.95
98.77
103.23
103.59
102.44
107.26
97.12
99.05
103.98
96.41
94.07
95.81
Year3
94.73
100.59
107.34
104.46
99.93
109.24
94.95
97.51
103.44
96.90
95.98
94.54
356.43
359.07
361.67
Feb
30.456
363.47
Mar
32.372
364.32
Apr
30.905
365.93
May
30.743
368.01
June
32.794
370.08
July
Aug
Sept
Oct
Nov
Dec
29.342
30.765
31.637
30.206
30.842
31.090
Seasonal Indexing:
Month
Year1
Jan
Feb
Mar
Apr
May
June
July
94.08
Aug
100.29
Sept
104.32
Oct
100.17
Nov
95.50
Dec
93.32
Total
Year4
93.82
97.16
106.72
104.37
101.43
106.50
93.48
100.13
105.34
97.16
97.14
97.33
Adjust each seasonal index by 1200/1199.88 = 1.0001
Year5
96.34
100.80
106.75
101.57
100.53
106.63
Index
95.34
99.68
106.74
103.98
100.98
106.96
94.52
99.59
104.15
97.03
95.74
95.18
1199.88
Page 28
Final Seasonal Indexes:

Month
Jan
Feb
Mar
Apr
May
June
July
Aug
Sept
Oct
Nov
Dec
Index
95.35
99.69
106.75
103.99
100.99
106.96
94.53
99.60
104.16
97.04
95.75
95.19
15.35
Item
Margarine (lb.)
Shortening (lb.)
Milk (1/2 gal.)
Cola (2 liters)
Potato Chips (12 oz.)
Total
Index2007 =
2007
Price Quantity
1.26
21
0.94
5
1.43
70
1.05
12
2.81
27
7.49
P
P
(100)
7.49
(100) = 100.0
7.49
P
P
(100)
7.73
(100) = 103.2
7.49
P
P
(100)
8.37
(100) = 111.8
7.49
2007
2007
Index2008 =
2008
2007
Index2009 =
2008
Price Quantity
1.32
23
0.97
3
1.56
68
1.02
13
2.86
29
7.73
2009
2007
2009
Price Quantity
1.39
22
1.12
4
1.62
65
1.25
11
2.99
28
8.37
P2007Q2007
P2008Q2007
P2009Q2007
26.46
4.70
100.10
12.60
75.87
219.73
27.72
4.85
109.20
12.24
77.22
231.23
29.19
5.60
113.40
15.00
80.73
243.92
Totals
IndexLaspeyres2008 =
IndexLaspeyres2009 =
Total
Page 29
P
P
2008
Q2007
2007
Q2007
P
P
2009
Q2007
2007
Q2007
(100) =
23123
.
(100) = 105.2
219.73
(100) =
243.92
(100) = 111.0
219.73
P2007Q2008
P2007Q2009
P2008Q2008
P2009Q2009
28.98
2.82
97.24
13.65
81.49
224.18
27.726
3.76
92.95
11.55
78.68
214.66
30.36
2.91
106.08
13.26
82.94
235.55
30.58
4.48
105.30
13.75
83.72
237.83
IndexPaasche2008 =
IndexPaasche2009 =
P
P
2008
Q2008
2007
Q2008
P
P
2009
Q2009
2007
Q2009
(100) =
23555
.
(100) = 105.1
224.18
(100) =
237.83
(100) = 110.8
214.66
15.37 Year
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
x
118.5
123.0
128.5
133.6
137.5
141.2
144.8
148.5
152.8
156.8
160.4
163.9
169.6
176.4
180.3
184.8
189.5
195.7
Page 30
Fma
Fwma
SEMA
SEWMA
125.9
130.7
135.2
139.3
143.0
146.8
150.7
154.6
158.5
162.7
167.6
172.6
177.8
182.8
128.4 134.56
133.1 111.30
137.3
92.16
141.1
85.10
144.8
96.04
148.8
99.50
152.7
93.61
156.6
86.03
160.3 123.77
164.8 188.38
170.3 161.93
175.4 150.06
180.3 137.48
184.9 167.70
82.08
65.93
56.25
54.17
63.52
64.80
58.68
53.14
86.12
135.26
100.80
89.30
85.56
115.78
SE = 1,727.60
1,111.40
MSEma =
SE
1727.60
= 123.4
No. Forecasts
14
MSEwma =
SE
11114
.
= 79.39
No. Forecasts
14
The weighted moving average does a better job of forecasting the data using
MSE as the criterion.
Page 31
15.39
Qtr TSCI 4qrtot
Year1 1 54.019
2 56.495
213.574
3 50.169
211.470
4 52.891
210.076
Year2 1 51.915
213.326
2 55.101
217.671
3 53.419
222.819
4 57.236
230.206
Year3 1 57.063
237.160
2 62.488
243.258
3 60.373
248.918
4 63.334
254.810
Year4 1 62.723
257.693
2 68.380
260.805
3 63.256
263.527
4 66.446
263.158
Year5 1 65.445
263.147
2 68.011
263.573
3 63.245
257.842
4 66.872
253.421
Year6 1 59.714
248.264
2 63.590
3 58.088
4 61.443
8qrtot
TC
425.044 53.131
SI
TCI
94.43
51.699 53.722
421.546 52.693 100.38
52.341 55.945
423.402 52.925
98.09
52.937 58.274
430.997 53.875 102.28
53.063 60.709
440.490 55.061
97.02
55.048 63.249
453.025 56.628 101.07
56.641 65.895
467.366 58.421
97.68
58.186 68.646
480.418 60.052 104.06
60.177 71.503
492.176 61.522
98.13
62.215 74.466
503.728 62.966 100.58
62.676 77.534
512.503 64.063
97.91
63.957 80.708
518.498 64.812 105.51
65.851 83.988
524.332 65.542
96.51
65.185 87.373
526.685 65.836 100.93
65.756 90.864
526.305 65.788
99.48
66.733 94.461
526.720 65.840 103.30
65.496 98.163
521.415 65.177
97.04
65.174 101.971
511.263 63.908 104.64
66.177 105.885
501.685 62.711
95.22
60.889 109.904
491.099 61.387 103.59
61.238 114.029
Quarter
1
2
3
4
Page 32
Year1
Year2
Year3
Year4
Year5
Year6
Index
97.68
104.06
98.13
100.58
97.91
105.51
96.51
100.93
99.48
103.30
97.04
104.64
95.22
103.59
94.43
100.38
98.09
102.28
97.02
101.07
97.89
103.65
96.86
100.86
Total
399.26
Adjust the seasonal indexes by:
400
= 1.00185343
399.26
Adjusted Seasonal Indexes:

Quarter
Index
1
2
3
4
98.07
103.84
97.04
101.05
Total
400.00
15.41 Linear Model: y = 53.41032 + 0.532488 x

R2 = 55.7% F = 27.65 with p = .000
se = 3.43
Quadratic Model: y = 47.68663 + 1.853339 x 0.052834 x2
R2 = 76.6% F = 34.37 with p = .000
se = 2.55
In the quadratic regression model, both the linear and squared terms have
significant t statistics at alpha .001 indicating that both are contributing. In
addition, the R2 for the quadratic model is considerably higher than the R2 for the
linear model. Also, se is smaller for the quadratic model. All of these indicate
that the quadratic model is a stronger model.
Page 33
15.43 The regression equation is:

Equity Funds = -359.1 + 2.0898 Money Market Funds
R2 = 88.2%
se = 582.685
D = 0.84
For n = 26 and = .01, dL = 1.07 and dU = 1.22.
Since D = 0.84 < dL = 1.07, the null hypothesis is rejected. There is significant
autocorrelation in this model.
Page 34
Bankruptcies = 75,532.436 0.016 Year
15.45 The model is:
Since R2 = .28 and the adjusted R2 = .23, this is a weak model.

et
- 1,338.58
- 8,588.28
- 7,050.61
1,115.01
12,772.28
14,712.75
- 3,029.45
- 2,599.05
622.39
9,747.30
9,288.84
- 434.76
-10,875.36
- 9,808.01
- 4,277.69
- 256.80
et et-1
(et et-1)2
- 7,249.7
1,537.7
8,165.6
11,657.3
1,940.5
-17,742.2
430.4
3,221.4
9,124.9
- 458.5
- 9,723.6
-10,440.6
1,067.4
5,530.3
4,020.9
52,558,150
2,364,521
66,677,023
135,892,643
3,765,540
314,785,661
185,244
10,377,418
83,263,800
210,222
94,548,397
109,006,128
1,139,343
30,584,218
16,167,637
(e e
t
D =
(e e
e
t 1
2
)2
t 1
)2 =921,525,945
et2
1,791,796
73,758,553
49,711,101
1,243,247
163,131,136
216,465,013
9,177,567
6,755,061
387,369
95,009,857
86,282,549
189,016
118,273,455
96,197.060
18,298,632
65,946
=936,737,358
921,525,945
= 0.98
936,737,358
For n = 16, = .05, dL = 1.10 and dU = 1.37

Since D = 0.98 < dL = 1.10, the decision is to reject the null hypothesis and
conclude that there is significant autocorrelation.

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Students Solutions Manual and Study Guide: Chapter 15

Differentiate among various measurements of forecasting error, including mean

Students Solutions Manual and Study Guide: Chapter 15

Students Solutions Manual and Study Guide: Chapter 15

Students Solutions Manual and Study Guide: Chapter 15

Students Solutions Manual and Study Guide: Chapter 15

Students Solutions Manual and Study Guide: Chapter 15

14. Examine the data given below.

The simple regression forecasting model developed from this data is

Students Solutions Manual and Study Guide: Chapter 15

Quantity Quantity Price Price

Using 2007 as the base year

Students Solutions Manual and Study Guide: Chapter 15

ANSWERS TO STUDY QUESTIONS

2. Time Series Data

y 93.602 2.023x , .916,

3. Seasonal, Cyclical, Trend, Irregular

15. Independent Variables,

17. 233.6, 112.05

18. 101.6, 104.9, 109.5

10. 1215, 1201.3, 1196, 1210.7,

21. 105.18, 106.82

Students Solutions Manual and Study Guide: Chapter 15

SOLUTIONS TO PROBLEMS IN CHAPTER 15

19.4 16.6 2.8

Students Solutions Manual and Study Guide: Chapter 15

4-mo. mov. avg.

4-mo. wt. mov. avg. error

Error 3-mo.avg. Error

Students Solutions Manual and Study Guide: Chapter 15

For = .9, MAD =

= .9 produces a smaller mean average error.

Students Solutions Manual and Study Guide: Chapter 15

15.11 Trend line:

Members = 145,392.3 64.6354 Year

F = 117.365, reject the null hypothesis.

Students Solutions Manual and Study Guide: Chapter 15

Students Solutions Manual and Study Guide: Chapter 15

15.15 Regression Analysis

Food = 1.454756 + 0.460811 Housing

)2 = 1.526 + 2.953 + 0.075 + 0.570 + 1.833 + 2.134 + 0.490 +

Students Solutions Manual and Study Guide: Chapter 15

Critical values of D: Using 1 independent variable, n = 29, and = .05,

Students Solutions Manual and Study Guide: Chapter 15

15.17 The regression equation is:

The Durbin Watson statistic for this model is:

Students Solutions Manual and Study Guide: Chapter 15

The model with 1 lag:

p = .000 R2 = 89.2% adjusted R2 = 88.8% se = 48.52

The model with 2 lags:

p = .000 R2 = 75.9% adjusted R2 = 74.8% Se = 70.84

Students Solutions Manual and Study Guide: Chapter 15

Students Solutions Manual and Study Guide: Chapter 15

P2000Q2000 P2007Q2000 P2008Q2000

Students Solutions Manual and Study Guide: Chapter 15

The linear model:

Yield = 9.96 - 0.14 Month

The quadratic model:

Yield = 10.4 - 0.252 Month + .00445 Month2

In the quadratic model, both t ratios are significant,

Students Solutions Manual and Study Guide: Chapter 15

= .7 produces better forecasts based on MAD.

MAD for b) .3385, c) .4374 and .2596. Exponential smoothing with = .7