THE NEXT QUESTIONS ARE BASED ON THE FOLLOWING INFORMATION:
The table below is the data set of the Shiller Real Home Price Index for the years 1894-1904.
Use a smoothing constant of α = 0.8 to determine the forecasts using simple exponential smoothing.

-Calculate the forecast value for the year 1905,if the real home price index for that year is 98.056.
A)100.31
B)98.51
C)98.06
D)cannot be determined

Question

THE NEXT QUESTIONS ARE BASED ON THE FOLLOWING INFORMATION:
The table below is the data set of the Shiller Real Home Price Index for the years 1894-1904.
Use a smoothing constant of α = 0.8 to determine the forecasts using simple exponential smoothing.
 
-Calculate the forecast value for the year 1905,if the real home price index for that year is 98.056.
A)100.31 
B)98.51 
C)98.06 
D)cannot be determined

Quizplus · Accepted Answer

Applying simple exponential smoothing with α = 0.8, we get the following:
Ft+1 = α*At + (1-α) * Ft
where,
Ft+1 = forecast for year 1905
At = actual value for year 1904
Ft = forecast for year 1904

Given, A1904 = 98.78 (from the table)
And, F1904 = 98.78 (since it's the first year, we take the actual value as the initial forecast)

Therefore, 
F1905 = α*A1904 + (1-α) * F1904
= 0.8*98.78 + 0.2*98.78
= 98.51

Hence, the forecast value for the year 1905 is 98.51.