Question

In: Statistics and Probability

1) The following are corporate AAA bond interest rates for the last 12 months: 9.5, 9.3,...

1) The following are corporate AAA bond interest rates for the last 12 months: 9.5, 9.3, 9.4, 9.6, 9.8, 9.7, 9.8, 10.5, 9.9, 9.7, 9.6, and 9.6.

a) Develop a three- and four-month moving average for this time series. Which moving average provides the better forecast? Why?

b) Based on your decision in part a, what is the forecast for bond interest rates for next month?

Solutions

Expert Solution

the mean square error is MSE=0.12

the mean square error is MSE = 0.14

The MSE for 3 month moving average is smaller than the 4 month moving average therefore 3 MA is best forecast

The forecast for bond interest rates for next month is 9.63


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