ECO 550 Week 3 Chapter 5 and Chapter 6 Problems

1112 1160 115763 103387 2007 1150 1170 1200 119576

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1112 1160 1157.63 1033.87 2007 1150 1170 1200 1195.76 1083.71 2008 1270 1170 1150 1154.58 1103.60 2009 1290 1207 1270 1258.46 1153.52 2010 1214 1237 1290 1286.85 1194.46 MSE 19015.2 25748.6 18680.0 17974.8 110856.1 RMSE 137.9 160.5 136.7 134.1 333.0 b. The lowest RMSE is for Exponential smoothing, using a weight of .9 on the past actual number and .1 on the forecast. That RMSE = 134.1, which is the lowest. RMSE = [(Y actual Y forecast ) 2 /n] .
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c. The one with the lowest RMSE, is a forecast of 1,268.85 for 2010. Based on past performance, this is the most accurate forecasting model of those examined. 6. Mapco Enterprises uses econometric forecasting a. Q D = 18,000 + 0.4(15,000)  350(50) + 90(55) = 11,450 expected to be sold in 2010. b. Q D = 18,000 + 0.4(15,000)  350(50) + 90(50) = 11,000, expected sales decline when Surefire (the competitor) reduces prices. c. A thirty percent reduction in new homes bring 15,000 down to .7(15,000) or 10,500. Q D = 18,000 + 0.4(10,500)  350(50) + 90(55) = 9,650 is the forecast. 9. Savings-Mart patio furniture question with quarterly dummy variables for the first three quarters of the year. Objective is to forecast four quarters of 2010. With the first quarter of 2002 as T=0, the four quarters of 2010 are T=32, 33, 34, and 35. Quarter 1, 2010: t =32: D 11 =1 D 21 = 0 D 31 =0 Y' 1 = 8.25 + .125(32)  2.75(1) + .25(0) + 3.50(0) = $9.5 (million) Quarter 2, 2010: t = 33: D 12 =0 D 22 =1 D 32 =0 Y' 2 = 8.25 + .125(33)  2.75(0) + .25(1) + 3.50(0) = $12.625 (million) Quarter 3, 2010: t = 34: D 13 =0 D 23 =0 D 33 =1 Y' 3 = 8.25 + .125(34)  2.75(0) + 2.25(0) + 3.50(1) = $16 (million) Quarter 4, 2010: t = 35 D 14 =0 D 24 =0 D 34 =0
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Y' 4 = 8.25 + .125(35) 2.75(0) + 2.25(0) + 3.50(0) = $12.625 (million)
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Chapter 6 2. Cummins could have established internal hedges by setting up offsetting payables in foreign currencies that become cheaper as the dollar appreciates. As the dollar appreciated, rising prices
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