QUESTION 1 Use the monthly data provided on the closing pric

QUESTION 1

Use the monthly data provided on the closing prices for GE and BAC.

What is the approximate value of mean absolute percentage error (MAPE) of forecasting based on 4 days moving average for BAC prices?

2.32%

6.09%

0.65%

0.98%

QUESTION 2

Use the monthly data provided on the closing prices for GE and BAC.

What is the risk as measured by standard deviation for BAC during the sample period?

0.65%

1.70%

6.46%

3.44%

QUESTION 3

Use the monthly data provided on the closing prices for GE and BAC.

What is the mean monthly return for GE during the sample period?

3.44%

1.70%

6.46%

0.65%

QUESTION 4

Consider the following results of a simple regression model of dollar price of unleaded gas (dependent variable) and dollar price of crude oil (independent variable):

R-square = 0.98

What will be forecasted price of unleaded gas if the crude oil price is expected to increase by 5%. The current price of crude oil and unleaded gas are $100 and $2 respectively?

$2.10

$2.25

$2.05

$2.30

QUESTION 5

Consider the following regression results of a simple regression model of dollar price of unleaded gas (dependent variable) and dollar price of crude oil (independent variable):

R-square = 0.98

What will be forecasted price of unleaded gas when the crude oil price is $65?

$3.11

$3.56

$2.89

$2.58

Date	GE	BAC
Oct-13	25	14
Nov-13	26	16
Dec-13	27	16
Jan-14	25	17
Feb-14	25	16
Mar-14	25	17
Apr-14	26	15
May-14	26	15
Jun-14	26	15
Jul-14	25	15
Aug-14	26	16
Sep-14	26	17
Oct-14	26	17
Nov-14	27	17

Solution

question 5

here Y=dollar price of unleaded price and X=dollar price of crude oil

the regression equation is given as

Y=0.31+0.05X

so when X=$65 we have Y=0.31+0.05*65=$3.56   [hence second option] [answer]

question 4

we have the regression equation as Y=0.31+0.05X

initially X was $100. then it iwas increased by 5% and become X\". so X\"=100+100*5/100=105

initially Y was $2. after the increase of X it become Y\"

so Y\"=0.31+0.05X\"

so (Y\"-Y)=0.05(X\"-X)

or, Y\"-2=0.05*(105-100)=0.25

or Y\"=$2.25

so the forecasted price of unleaded gas is $2.25 [answer]

question 3

the monthly returns for GE are calculated as

1st month=(closing value at NOV-13 -closing value at OCT-13)/closing value at OCT-13=(26-25)/25

2nd month=(closing value at DEC-13 -closing value at NOV-13)/closing value at NOV-13=(27-26)/26

and so on in this way.

at last 13th month=(closing value at NOV-14 -closing value at OCT-14)/closing value at OCT-14=(27-26)/26

then the mean of these 13 values are calculated using minitab.

[(26-25)/25+(27-26)/26+(25-27)/27+......+(27-26)/26]/13

which comes out to be 0.00649=0.65% [answer]

question 1

for a 4 day moving average at first the average of first 4 values are calculated. then excluding the first and including the 5th one, again average is calculated and in this way until we reach the last 4 values.

let A_t denote the original values and F_t be the moving average values for t=1,2,3,....

then MAPE=100*[|A₁-F₁|/A₁+|A₂-F₂|/A₂+.........+|A_n-F_n|/A_n]/n

we have

At    Ft

14   *
16   *
16   *
17   15.75
16   16.25
17   16.50
15   16.25
15   15.75
15   15.50
15   15.00
16   15.25
17   15.75
17   16.25
17   16.75

hence using the formula given taking n=11 [ as the Ft values for the first 3 out of 14 values are unavailable]

we get MAPE=100*[|17-15.75|/17+|16-16.25|/16+.........+|17-16.75|/17]/11=6.0948%=6.09% [answer]