Assignment 1

Forecasting
__________________________________________________________________________________________
Q1. The weekly deliveries of a car to an automobile dealer are as shown below. Fit the straight line model
xt = a + bt + t Estimate the error variance
Week
Sales

1
75

2
74

3
79

Q2 Weekly sales for the Hot Pizza are as follows:

Weeks
Demand ($)
1
108
2
116
3
118
4
124
5
96
6
119

4
83

5
69

6
78

7
71

Weeks
7
8
9
10
11
12

8
80

9 10 11 12
77 85 81 70
Demand ($)
96
102
112
102
92
91

Table 1
a) Estimate demand for the next four weeks using the 4-week simple moving average as well as the simple
exponential smoothing with =0.1.
b) Evaluate the MAD, MAPE, MSE, bias and TS in each case.
c) Which of the two methods do you prefer? Why?
Q3. Consider the time series data shown in Table 2.
a) Make a time series plot of the data.
b) Use simple exponential smoothing with =0.2 to smooth first 40 time periods of this data. How well
does this smoothing procedure work?
c) Make one-step-ahead forecasts of the last 10 observations. Determine the forecast errors.
Period
Period
Period
Period
Period
1
48.7
11
49.1
21
45.3
31
50.8
41
47.9
2
45.8
12
46.7
22
43.3
32
46.4
42
49.5
3
46.4
13
47.8
23
44.6
33
52.3
43
44
4
46.2
14
45.8
24
47.1
34
50.5
44
53.8
5
44
15
45.5
25
53.4
35
53.4
45
52.5
6
53.8
16
49.2
26
44.9
36
53.9
46
52
7
47.6
17
54.8
27
50.5
37
52.3
47
50.6
8
47
18
44.7
28
48.1
38
53
48
48.7
9
47.6
19
51.1
29
45.4
39
48.6
49
51.4
10
51.1
20
47.3
30
51.6
40
52.4
50
47.7
Table 2
Q4. Reconsider the time series data given in Table 2.
a) Use simple exponential smoothing with optimum value of to smooth the first 40 time periods of this
data. How well does this smoothing procedure work? Compare the results with those obtained in the
previous problem.
b) Make one-step-ahead forecasts of the last 10 observations. Determine the forecast errors. Compare these
forecast errors with those from the previous problem.
Q5. The data in the Table 3 exhibits a linear trend.

a) Verify that there is a trend by plotting the data.

b) Using the first 12 observations, develop an appropriate procedure for forecasting.
c) Forecast the last 12 observations and calculate the forecast errors. Does the forecast procedure seem to
be working satisfactorily?
Period
Period
Period
Period
1
315
7
318
13
460
19
520
2
195
8
355
14
395
20
400
3
310
9
420
15
390
21
420
4
316
10
410
16
450
22
580
5
325
11
485
17
458
23
475
6
335
12
420
18
570
24
560
Table 3
Q6. Reconsider the linear trend data in Table 3. Take the first difference of this data and plot the time series of
the first differences. Has differencing removed the trend? Use exponential smoothing on the first 11 differences.
Instead of forecasting the original data, forecast the first differences for the remaining data using exponential
smoothing and use these forecasts of the first differences to obtain forecasts for the original data.
Q7. Table 4 gives four years of data on monthly demand for a soft drink.
a) Make a time series plot of the data and verify that it is seasonal. Why do you think seasonality is present
in these data?
b) Use Winters multiplicative method for the first three years to develop a forecasting method for these
data. How well does this smoothing procedure work?
c) Make one-step-ahead forecasts of the last 12 months. Determine the forecast errors. How well did your
procedure work in forecasting new data?
Period
Period
Period
Period
1
2
3
4
5
6
7
8
9
10
11
12

143
191
195
225
175
389
454
618
770
564
327
235

13
14
15
16
17
18
19
20
21
22
23
24

189
326
289
293
279
552
674
827
1000
502
512
300

25
26
27
28
29
30
31
32
33
34
35
36

359
264
315
362
414
647
836
901
1104
874
683
352

37
38
39
40
41
42
43
44
45
46
47
48

332
244
320
437
544
830
1011
1081
1400
1123
713
487

Table 4
Q8.Prove that the simple moving average and simple exponential smoother are biased estimators for the linear
trend model
; and the amount of bias is
and
respectively.
Hence or otherwise prove that if we take
, then simple moving average and simple exponential
smoothing both are equivalent.
Show that the variance component explained by the simple moving average smoothing and simple exponential
smoothing are same, if
.

Q9. Suppose that simple exponential smoothing is being used to forecast a process. At the start of period
mean of the process shifts to a new level
. The mean remains at this new level for subsequent time
periods. Show that the expected value of the exponentially smoothed statistics is

, the