Question

Corporate triple A bond interest rates for 12 consecutive months are as follows:

9.6

9.4

9.2

9.7

9.8

9.9

9.7

10.6

9.9

9.6

9.7

9.5

(b)

Develop three-month and four-month moving averages for this time series.

If required, round your answers to two decimal places.

Week	Sales	3 Month Moving Average	4 Month Moving Average
1	9.6
2	9.4
3	9.2
4	9.7
5	9.8
6	9.9
7	9.7
8	10.6
9	9.9
10	9.6
11	9.7
12	9.5

Enter the Mean Square Errors for the three-month and the four-month moving average forecasts. If needed, round your answers to three decimal digits.

	3-month moving average	4-month moving average
MSE

Does the three-month or the four-month moving average provide the better forecasts based on MSE? Explain.

(c)	What is the moving average forecast for the next month?

Answer 1

MSE of 3 month Moving Average = 0.155

MSE of 4 month Moving Average = 0.172

The three month moving average provide the better forecast as we can see that the MSE for 3 month is less than 4 month moving average.

c) 3 Month Moving Average forecast for next month = (9.6 + 9.7 + 9.5) / 3 = 9.6

4 Month Moving Average forecast for next month = (10.07 +10.07 +10.03 + 9.73) / 4 = 9.98