Consider the following time series data.

Quarter Year 1 Year 2 Year 3
1 5 8 10
2 1 3 7
3 3 6 8
4 7 10 12
(a) Choose the correct time series plot.
(i)
(ii)
(iii)
(iv)

Plot (i)

What type of pattern exists in the data?

Positive trend pattern, with seasonality


(b) Use a multiple regression model with dummy variables as follows to develop an equation to account for seasonal effects in the data: Qtr1 = 1 if Quarter 1, 0 otherwise; Qtr2 = 1 if Quarter 2, 0 otherwise; Qtr3 = 1 if Quarter 3, 0 otherwise.
If required, round your answers to three decimal places. For subtractive or negative numbers use a minus sign even if there is a + sign before the blank (Example: -300). If the constant is "1" it must be entered in the box. Do not round intermediate calculation.
ŷ =
6.667
+
-1.000
Qtr1 +
-3.000
Qtr2 +
-2.000
Qtr3

(c) Compute the quarterly forecasts for next year based on the model you developed in part (b).
If required, round your answers to three decimal places. Do not round intermediate calculation.
Year Quarter Ft
4 1
5.667

4 2
3.667

4 3
4.667

4 4
6.667


(d) Use a multiple regression model to develop an equation to account for trend and seasonal effects in the data. Use the dummy variables you developed in part (b) to capture seasonal effects and create a variable t such that t = 1 for Quarter 1 in Year 1, t = 2 for Quarter 2 in Year 1,… t = 12 for Quarter 4 in Year 3.
If required, round your answers to three decimal places. For subtractive or negative numbers use a minus sign even if there is a + sign before the blank (Example: -300).
ŷ =
4.4167
+
-0.03125
Qtr1 +
-4.6875
Qtr2 +
-3.34375
Qtr3 +
0.65625
t

(e) Compute the quarterly forecasts for next year based on the model you developed in part (d).
Do not round your interim computations and round your final answer to three decimal places.
Year Quarter Period Ft
4 1 13
12.917

4 2 14
8.917

4 3 15
10.917

4 4 16
14.917


(f) Calculate the MSE for the regression models developed in parts (b) and (d).
If required, round your intermediate calculations and final answer to three decimal places.

Model developed in part (b) Model developed in part (d)
MSE
4.722222

0.128472


Is the model you developed in part (b) or the model you developed in part (d) more effective?
The model developed in
part (d)
is more effective because it has the
smaller
MSE.