Question

Exercise 17.12 Algorithmic Corporate triple-A band interest rates for 12 consecutive months follow. 9.3 9.2 9.2 94 10.0 9.69.810.6 10.0 9.9 9.7 9.6 a. Which of the following is a correct time series plot for this data? 1 Interest Rate:%) 11.5 1o.s 1 0 9.5 มิ.5 6.5

Answer 1

a) As the value of 2^nd month is decreasing by 0.1 units, so the graph will have negative slope at start In option below, the option(1) is having the negative slope & subsequent points plotted correctly b) \r\n rightarrow 3-month moving average for month-4 = 9.3 + 9.2 + 9.2/3 = 9.23 error = vert 9.4 - 9.23 vert = 0.17 error^2 = 0.0289 similarly for all months rightarrow 4-month moving average for month-5 = 9.3 + 9.2 + 9.2 + 9.4/4 = 9.27 error = vert 10 - 9.27 vert = 0.73 error^2 = 0.53 similarly for all months rightarrow MSE (3-month) = Sigma error^2/9 = 1.534/9 MSE(3-month) = 0.17 rightarrow MSE(4-month) = error^2/8 = 1.76/8 MSE(4-month) = 0.22 rightarrow The three month moving average provides better forecast since it has smaller MSE rightarrow Moving forecast for next month, using 3-month moving average as more accurate forecast, = 9.9 + 9.7 + 9.6/3 F = 9.73
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