1. Two models are suggested: (i) a two-period moving average or (ii) three-period moving average. Use the template and the MAPE criterion (you do not need to calculate anything by hand). Which model works better? Select the correct answer below (read the entire answer):
   1. 3-period moving average, because its MAPE is larger than its MSE
   2. 2-period moving average, because we want to save on the amount of information we use when making forecasts.
   3. 2-period moving average, because its MAPE=9.34, while MAPE of the 3-period moving average = 10.06.
   4. 2-period moving average, because its MAPE is less than 10%.
2. Here you need to show your familiarity with the moving average forecast calculations, and the calculation of MAE. The first four data points were separated from the rest of the time series. Pretend this is now the only sample you have available (Y1 = 1.34, Y2 = 1.5, Y3 = 1.48, Y4 = 1.78).

1. Show how you would calculate F₃₊₁, F₄₊₁, andF₄₊₃ for the reduced time series of Y1, Y2, Y3, and Y4, using the 3-period moving average.
2. Show how you would calculate MAE for the reduced sample shown above when using the 3-period moving average forecasts you calculated in part (i).

1. Back to the entire data set. Since funding plans are made by the bank quarterly, a new funding plan is made to cover next quarter loans at the beginning of each quarter. It is now month t=24 and this is the end of a quarter. So, a new plan is made by the bank to cover the quarter that starts at t=25. How much money should be made available to cover all the forecast loan requests for next quarter? (recall, that the data values are the monthly demand for loans). Use the 2-period moving average and the template (if you wish). a. Calculate F(24+1) by (1.43+1.48)/2. This is the amount the bank should make available for the quarter. b. Calculate the following forecasts: F(24+1) = (1.48+1.43)/2 = 1.45; F(25+1) = (Y24+F25)/2 = (1.48+1.45)/2 = 1.465; F(26+1) =(F25+F26)/2 = (1.45+1.465)/2 Now add the three forecasts to find the amount of funds that should be made available for the quarter.

c. Calculate the following forecasts: F(24+1) = (1.44+1.43)/2; F(24+2) = 2*F(24+1); F(24+3) = 3*F(24+1) Now add the three forecasts to find the amount of funds that should be made available for the quarter.

d. None of the above.

t=1 t=2 t=3

This is the time series: Copy and paste the values into your template (you can copy all the column as one selection. Dont copy the t column)

1.34

1.5

1.48

1.78

1.59

1.5

1.42

1.85

1.77

1.52

1.42

1.41

1.58

1.31

1.55

1.39

1.45

1.74

1.68

1.38

1.45

1.43

1.43

1.48