Question

What is the forecast for this year using exponential smoothing with trend if alpha=0.5 and alpha=0.3?

Assume the forecast for last year was 21,000 and the forecast for two years ago was 19,000, and that the trend estimate for last years forecast was 1,500.

a)18,750

b)19,500

c)21,000

d)22,650

e)22,800

Answer 1

i. the forecast for this year using alpha = 0.5 is 11250

ii. using alpha = 0.3 is 7350

Explanation:

using exponential smoothing,the formula is given as: F(t+1) =αAt + (1-α)Ft, where F(t+1) is the new forecast or required forecast, α is the alpha, At is the each date or observation and Ft is the current trend.

i. using alpha= 0.5, the year forecast = (0.5 x 21000) + (1-0.5) x 1500 = 11250

ii. using alpha = 0.3,the year forecast = (0.3 x 21000) + (1-0.3) x 1500 = 7350.

this year forecast using alpha = 0.5 and 0.3 are 11250 and 7350 respectively

Answer 2

22650

Explanation:

Assume the forecast for last year was 21,000 and the forecast for two years ago was 19,000, and that the trend estimate for last years forecast was 1,500.

a)18,750

b)19,500

c)21,000

d)22,650

e)22,800

Forecasting is a technique that uses historical data as inputs to make calculated estimates that are predictive in predicting the direction of economic trends.

Average of difference in alpha is (0.5-0.3)/2=0.1

trend estimate 1500

for this year

yt=21000+1500+0.1*1500

yt=22650