Consider the following time series representing the monthly earnings for Company X

| August 30, 2017

Question
Consider the following time series representing the monthly earnings for Company X for the last 24 months. Also shown are the Simple Exponential Smoothing (SES) forecasts using a smoothing constant (alpha) of 0.6 and the SES forecasts using a smoothing constant (alpha) of 0.1.

Use this information to answer (a) through (d). Type your responses in the box below.

(a) Using SES with alpha = 0.1, what is the value of the forecasting error for t = 10 (i.e. e10)?

(b) Compute the MAD for the SES (alpha = 0.6) forecasts. (Hint: do not include the first period, t = 1.)

(c) Compute the MAD for the SES (alpha = 0.1) forecasts. (Hint: do not include the first period, t = 1.)

(d) Which of the smoothing constants (0.6 or 0.1) works better for forecasting this time series, and why?

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