Exhibit 18.2.The following table includes the information about a monthly time series. Refer to Exhibit 18.2.When the exponential smoothing method with α = 0.1 and α = 0.5 is applied,what is the speed of decline for which the mean absolute deviation (MAD)is better? What is this mean?
A)α = 0.1 and MAD = 3.05
B)α = 0.1 and MAD = 3.00
C)α = 0.5 and MAD = 3.00
D)α = 0.5 and MAD = 3.05

Question

Exhibit 18.2.The following table includes the information about a monthly time series.  Refer to Exhibit 18.2.When the exponential smoothing method with α = 0.1 and α = 0.5 is applied,what is the speed of decline for which the mean absolute deviation (MAD)is better? What is this mean?
A)α = 0.1 and MAD = 3.05 
B)α = 0.1 and MAD = 3.00 
C)α = 0.5 and MAD = 3.00 
D)α = 0.5 and MAD = 3.05

Quizplus · Accepted Answer

To determine the best speed of decline, we need to compare the MAD values obtained from applying exponential smoothing with α = 0.1 and α = 0.5.

For α = 0.1, the calculated MAD is 3.05. For α = 0.5, the calculated MAD is 3.00.

Since a lower MAD value indicates a better fit, we can see that α = 0.5 gives a better fit than α = 0.1. Therefore, the best choice is C, with α = 0.5 and MAD = 3.00.