The Management of a Company Specializing in Securities Analysis Has

question 131

Multiple Choice

The management of a company specializing in securities analysis has been using two forecasting methods to follow a new stock issue. Forecast Method $$\begin{array} { | l | l | l | l | } \hline \text { Month } & \begin{array} { c } \text { Exponential } \\\text { Smoothing }\end{array} & \text { Judgmental } & \begin{array} { c } \text { Actual } \\\text { Price }\end{array} \\\hline 1 & 48 & 50 & 51 \\2 & 50 & 52 & 53 \\3 & 51 & 55 & 54 \\\hline\end{array}$$ Which one of the following statements is TRUE?

• A) Based on MAD, the judgmental method is more accurate.
• B) Based on CFE, the bias of the judgment forecasts is larger than the bias of the exponential smoothing forecasts.
• C) Based on MAD, the exponential smoothing approach is more accurate.
• D) Based on CFE, the bias of the exponential smoothing forecasts is steadily improving.

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Definitions:

Degrees of Freedom

The number of independent pieces of information available to estimate another piece of information or the parameters in a statistical model.

Mean

The average value of a set of numbers, obtained by dividing the sum of all the numbers by the count of numbers.

Percentile Points

Points or values below which a certain percentage of observations in a dataset fall, used to measure the relative standing of a value within a dataset.

F Distribution

A probability distribution that arises in the analysis of variance and is used in hypothesis testing and confidence interval estimation for two sample variances.