Question

A State University Credit Union handles saving accounts and makes loans to members. In order to plan its investment strategies, the credit union needs to forecast monthly loan requests. Monthly Loan requests were recorded for the last 25 months and are presented in the table at the bottom of this page. Answer the following questions:

1. Obtain the regression equation to predict monthly loans. Write it down here.

1. What does the slope of this equation tell you in this particular problem?

2. Use the equation of part ‘a’ (not the template results) to make a prediction of expected loan requests for each of the next three months (months 26, 27, and 28). Show your calculations.

3. The credit union wants to be 95% confident that it has prepared enough funds to meet the requests for loans. How much should the credit union prepare in each of the next three months (Months 26, 27, and 28)?
   

2. Use the Holt’s approach.

(i) With alpha = 0.55, and gamma = 0.22 make a forecast for months 26, 27, and 28.
    Show how these forecasts are calculated using L₂₅ andT₂₅ from the template.

(ii) As a matter of policy, management will approve requests for loans up to a total of $2,000,000 a month (which, in our data set, will be a value of 2000 since the data appear in thousands). For each of the next three months find the confidence level needed, such that the bank will be able to approve all the predicted loan requests per month. You can use trial and error with the template, or goal seek.

	Loan		Loan
Month	Requests	Month	Requests
1	1156	14	1264
2	1101	15	1235
3	1195	16	1357
4	1072	17	1373
5	1237	18	1358
6	1106	19	1489
7	1148	20	1428
8	1005	21	1516
9	1350	22	1681
10	1115	23	1598
11	1196	24	1699
12	1298	25	1781
13	1260

Answer 1

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