Problem 15-07 (Algorithmic) Refer to the gasoline sales time series data in the
ID: 2737713 • Letter: P
Question
Problem 15-07 (Algorithmic)
Refer to the gasoline sales time series data in the given table.
Compute four-week and five-week moving averages for the time series. Round your answers to two decimal places.
Compute the MSE for the four-week and five-week moving average forecasts. Round your intermediate calculations and final answers to two decimal places.
MSE for four-week moving average = _______________
MSE for five-week moving average = ______________
Explanation / Answer
Moving average (MA) is a trend-following or lagging indicator because it is based on past prices. The two basic and commonly used MAs are the simple moving average (SMA), which is the simple average of a security over a defined number of time periods, and the exponential moving average (EMA), which gives bigger weight to more recent prices.
A simple moving average (SMA) is a simple, or arithmetic, moving average that is calculated by adding the closing price of the security for a number of time periods and then dividing this total by the number of time periods. Short-term averages respond quickly to changes in the price of the underlying, while long-term averages are slow to react.
Simple moving average Week Sales 4-Week Moving Average Values used for MV 5-Week Moving Average Values used for MV 1 18 2 21 3 19 4 22 20 Average of week 1 through 4 5 19 20.25 Average of week 2 through 5 19.8 Average of week 1 through 5 6 15 18.75 Average of week 3 through 6 19.2 Average of week 2 through 6 7 20 19 Average of week 4 through 7 19 Average of week 3 through 7 8 17 17.75 Average of week 5 through 8 18.6 Average of week 4 through 8 9 23 18.75 Average of week 6 through 9 18.8 Average of week 5 through 9 10 19 19.75 Average of week 7 through 10 18.8 Average of week 6 through 10 11 16 18.75 Average of week 8 through 11 19 Average of week 7 through 11 12 23 20.25 Average of week 9 through 12 19.6 Average of week 8 through 12