The human resources manager for a medium-sized business is interested in predicting the dollar value of medical expenditures filed by employees of her company for the year 2017. From her company’s database, she has collected the following information for the previous seven years:

Year Medical Claims 2010 $405,642.43 2011 $407,180.60 2012 $408,203.30 2013 $410,088.03 2014 $411,085.64 2015 $412,200.39 2016 $414,043.90

a. Prepare a graph of medical expenditures for the years 2010 through 2016. Which forecasting technique do you think is most appropriate for this time series: single exponential smoothing or double exponential smoothing? Why?

b. Use an a value of 0.25 and a b value of 0.15 to produce a double exponential forecast for the medical claims data. Use linear trend analysis to obtain the starting values for C0 and T0.

c. Compute the MAD value for your model for the years 2010 through 2016. Also produce a graph of your forecast values.