Consider the following time series data.

Month	1	2	3	4	5	6	7
Value	21	10	17	9	16	20	12

(a)

Compute MSE using the most recent value as the forecast for the next period.

MSE =

What is the forecast for month 8?

(b)

Compute MSE using the average of all the data available as the forecast for the next period. (Round your answer to two decimal places.)

MSE =

What is the forecast for month 8?

(c)

Which method appears to provide the better forecast?

a) The most recent value provides a better forecast, because its MSE is smaller than the MSE using the average of all the previous values.

b) The average of all the previous values provides a better forecast, because its MSE is smaller than the MSE using the most recent value.

c) The most recent value provides a better forecast, because its forecast for month 8 is smaller than the month 8 forecast using the average of all the previous values.

d) The average of all the previous values provides a better forecast, because its forecast for month 8 is larger than the month 8 forecast using the most recent value.