Suppose that you work for a major U.S. retail department store that has outlets nationwide. The store offers credit to customers in various forms, including store credit cards, and over the years has seen a substantial increase in credit purchases. The manager of credit sales is concerned about the degree to which consumers are using credit and has started to track the ratio of consumer installment credit to personal income. She calls this ratio the credit percent, or CP, and has asked that you forecast that series for year 8. The available data are:
Year CP
1…………………..12.96
2…………………..14.31
3…………………..15.34
4…………………..15.49
5…………………..15.70
6…………………..16.00
7…………………..15.62
a. Use the first naive model presented in this chapter to prepare forecasts of CP for years 2 through 8.
b. Plot the actual and forecast values of the series for the years 1 through 8. (You will not have an actual value for year 8 or a forecast value for year 1.)
c. Calculate the root-mean-squared error for your forecasts for years 2 through 7.