Question

Consider the following time series data:

Month	1	2	3	4	5	6	7
Value	25	14	20	12	20	22	16

(a)	Compute MSE using the most recent value as the forecast for the next period.
	If required, round your answer to one decimal place.
	What is the forecast for month 8?
	If required, round your answer to one decimal place. Do not round intermediate calculation.
(b)	Compute MSE using the average of all the data available as the forecast for the next period.
	If required, round your answer to one decimal place. Do not round intermediate calculation.
	What is the forecast for month 8?
	If required, round your answer to one decimal place.
(c)	Which method appears to provide the better forecast?

Answer 1

month	value	Forecast	|error|	|error|^2	|A-F|/A
1	25
2	14	25	11	121	0.786
3	20	14	6	36	0.300
4	12	20	8	64	0.667
5	20	12	8	64	0.400
6	22	20	2	4	0.091
7	16	22	6	36	0.375
		total	41	325	2.618
		average	6.83	54.17	43.64%

a)

MSE =54.2

forecast =

16.0

b)

month	value	Forecast	(error)^2
1	25
2	14	25.00	121.00
3	20	19.50	0.25
4	12	19.67	58.78
5	20	17.75	5.06
6	22	18.20	14.44
7	16	18.83	8.03
		total	207.56
		average	34.59
MSE =			34.6
forecast =			18.4

c)

average of all the data available is better beause of smaller MSE