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 2011. From her company’s database she has collected the following information showing the dollar value of medical expenditures made by employees for the previous seven years:

Year Medical Claims 2004 $405,642.43 2005 $407,180.60 2006 $408,203.30 2007 $410,088.03 2008 $411,085.64 2009 $412,200.39 2010 $414,043.90

a. Prepare a graph of medical expenditures for the years 2004–2010. 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 2004 to 2010. Also produce a graph of your forecast values.