Question #33

Reading: Reading 2 Time-Series Analysis

PDF File: Reading 2 Time-Series Analysis.pdf

Page: 16

Status: Unattempted

Part of Context Group: Q33-34 First in Group
Shared Context
- For this question only, assume that Winston also ran an AR(1) model with the following results: yt = −0.9 − 0.23* yt −1 + et R-squared = 78.3% (0.823) (0.0222) The mean reverting level of this model is closest to: A) 1.16. B) −0.73. C) 0.77.
Question
Based on the autoregressive model, expected warranty expense in the first quarter of 2005 will be closest to:
Answer Choices:
A. $51 million
B. $60 million
C. $65 million
Explanation
Substituting the 1-period lagged data from 2004.4 and the 4-period lagged data from 2004.1 into the model formula, change in warranty expense is predicted to be higher than 2004.4. 11.73 = –0.7 – 0.07*24 + 0.83*17. The expected warranty expense is (53 + 11.73) = $64.73 million.
Actions
Practice Flashcards