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Expert: - 9/18/2010


Question
METHOD  5
Simple moving average


A simple moving average (SMA) is the unweighted  MEAN  of the previous N data points.

For example, a  5 -YEAR   simple moving average of closing  SALES   is the mean of the previous  5  YEARS ' closing  SALES .
If those SALES  are  YEAR1= 150, YEAR2 = 170, YEAR3=190, YEAR4= 200, YEAR5=210 ,then the formula is
150+170+190+200+210=800/5 = FORECAST = 220
i want to know wether this calculation is right or not
thanks
with regards
rehana


Answer
I would do a forecast by noting the average increase for each year/
The increases are 20, 20, 10, aqnd 10.  The average increase is 15,
so 210 + 15 = 225 when went 5.

It could also be done by noting that the decrease started at 20 and then went to 10.  The next years change could be done by a weight of the last year the closest.  The estimate for the next year might be
20p^4 + 20p^3 + 10p^2 + 10p where p is some constant between 0 and 1.

A final way of doing it might be to look at the last year or two years and estimate the next years change as this.  Since the last two years only had an increase of 10, the next increase might be 10 as well.  This method of only looking 1 or 2 years back would give the 220.

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