DSC2008 Business Analytics Data and Decisions

SEM 1, AY2016/2017

Tutorial 7
Question 1.
According to a Morgan Stanley report in March 2008, the annual demand for
hybrid cars in the US is expected to reach 1.2 million in 2015; this estimate
also included 250,000 plug-in-hybrid electric cars (PHEVs). In March 2009,
the US government, led by the President, Barack Obama, unveiled an energy
plan with an outlay of US$ 150 billion to develop alternative and clean energy
sources, with the government aiming to promote one million PHEVs by 2015.
As of 2009, many major automakers such as General Motors, Toyota Motor
Corporation, and Nissan were planning to mass produce electric cars by
2011.
The time series of the quarterly sales of hybrid cars including PHEVs of one
car dealer in the past years is displayed below.

Cars
1000
800
600
400
200
0

Analyst ABC has decided to use the ratio-to-moving-average method to

forecast the sales in Year 2013, where the long term trend is assumed to be
linear and the initial time point of quarter 1 in Year 2007 is set to 1.
The results are reported. However due to some technical problem, the
seasonal index as well as the Excel output for the deseasonalized data is
incomplete.
Seasonal
index

Q1
1.054

Q2
?

Q3
0.912

Q4
1.087

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DSC2008 Business Analytics Data and Decisions

SEM 1, AY2016/2017

SUMMARY OUTPUT

(rounding to 3 decimal places)

Regression Statistics

Multiple R
R Square
Adjusted R
Square
Standard
Error
Observations
ANOVA

0.989
0.979
0.978
20.283
28
df

SS

MS

Regression

492836.42
7

1197.970

Residual
Total

26
27

492836.42
7
?

Intercept
Time

Coefficient
s
333.993
?

Significance
F
0.000

411.393
503532.640

Standard Error

t Stat

P-value

7.876
0.475

42.405
34.612

0.000
0.000

a) What is the missing seasonal index for quarter 2? Interpret its meaning.
Explain the seasonal impact on the sales.
b) What is the slope of the deseasonalized sales? Interpret its meaning.
Write down the fitted model of the deseasonalized sales. Use X t to
denote the deseasonalized sales in quarter t.
c) What is the root mean squared error?
d) Compute the point forecasts of sales in the 4th quarter of Year 2013.
e) Suppose the future sales are Normal distributed, report the 95% interval
forecast in the 4th quarter of Year 2013.
f) Interpret your forecast results.
Question 2.
American Express was founded in 1850. It is best known for its credit card,
charge card, and travelers cheque businesses. BusinessWeek and Interbrand
ranked American Express as the 22nd most valuable brand in the world,
estimating the brand to be worth US$14.97 billion. Fortune listed Amex as one
of the top 20 Most Admired Companies in the World. The company is also one
of the 30 components of the Dow Jones Industrial Average. (Wikipedia)
Consider the closing price data of American Express in the file T7_Amex.xlsx.
a. Create a time series plot of the data. Based on what you see, which of
the exponential smoothing models do you think should be appropriate?
Why?

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DSC2008 Business Analytics Data and Decisions

SEM 1, AY2016/2017

b. Use Holt's exponential smoothing to forecast these data, requesting 10

days of future forecasts. Use the default smoothing constants of 0.1.
(Hint: use the initial values of level = 48.30 (price on 2003/10/15) and
trend = 0.)
c. Repeat part b, optimizing the smoothing constants. How do you
interpret these smoothing constants? (Hint: Use excel solver to select
the optimizer of the smoothing constants that minimize MSE. Use the
GRG nonlinear algorithm in Solver. See http://www.youtube.com/watch?
v=zOGfG65ASdA for how to use solver.) Does it make much of an
improvement?
d. Suppose seasonal period is one week, i.e. M=5. Use Holt-Winters
exponential smoothing to forecast these data. Optimize the smoothing
constants that minimize the MSE. (Hint: Use the average value of the
first 5 observations as the initial value for level. Set the initial value of
trend to be zero. Use the ratio of the actual value to the level as the
initial values of seasons. Use the GRG nonlinear algorithm in Solver)
Interpret results.

T7-3