2 Vidhya Balan is planning to liquidate her investments in mutual funds and invest in real estate. Before making the change to her investment strategy, Vidhya wants to forecast the price of mutual funds for the next 2 months. She has collected the following data on the average fund |prices for the past 10 months. Average Month Fund Price 1 55.1 2 53.8 3 53.4 4 52.95 52.15 52.75 7 52.65 8 51.5 9. 52.25 10 51.7 Using a five-period moving average, forecast the |average fund price for Period 11. b. Using exponential smoothing with a 0.3 forecast the average fund price for Period 11. Assume an initial forecast for Month 2 (F2) as 55.10
2 Vidhya Balan is planning to liquidate her investments in mutual funds and invest in real estate. Before making the change to her investment strategy, Vidhya wants to forecast the price of mutual funds for the next 2 months. She has collected the following data on the average fund |prices for the past 10 months. Average Month Fund Price 1 55.1 2 53.8 3 53.4 4 52.95 52.15 52.75 7 52.65 8 51.5 9. 52.25 10 51.7 Using a five-period moving average, forecast the |average fund price for Period 11. b. Using exponential smoothing with a 0.3 forecast the average fund price for Period 11. Assume an initial forecast for Month 2 (F2) as 55.10
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![### Investment Strategy and Mutual Fund Price Forecasting
**Scenario:**
Vidhya Balan is planning to liquidate her investments in mutual funds and invest in real estate. Before making the change to her investment strategy, Vidhya wants to forecast the price of mutual funds for the next 2 months. She has collected the following data on the average fund prices for the past 10 months:
**Data on Average Fund Prices:**
| Month | Average Fund Price |
|-------|---------------------|
| 1 | 55.1 |
| 2 | 53.8 |
| 3 | 53.4 |
| 4 | 52.95 |
| 5 | 52.15 |
| 6 | 52.75 |
| 7 | 52.65 |
| 8 | 51.5 |
| 9 | 52.25 |
| 10 | 51.7 |
**Forecasting Methods:**
**a. Five-Period Moving Average:**
Using a five-period moving average, forecast the average fund price for Period 11.
**b. Exponential Smoothing:**
Using exponential smoothing with α = 0.3, forecast the average fund price for Period 11. Assume an initial forecast for Month 2 (F2) as 55.10.
Detailed Explanation on Graphs/Diagrams:
In this section, the data provided doesn't include graphs or diagrams, but here is how you can visualize and interpret these concepts:
**Five-Period Moving Average Method:**
1. Calculate the average fund price for the most recent five months.
2. This value will be used as the forecasted fund price for the next period.
**Example:**
For Month 11, average the fund prices from Month 6 to Month 10:
\[ \text{Average} = \frac{52.75 + 52.65 + 51.5 + 52.25 + 51.7}{5} \]
**Exponential Smoothing Method:**
1. Use the formula:
\[ F_t = \alpha \times A_{t-1} + (1 - \alpha) \times F_{t-1} \]
where \( F_t \) is the forecast for the current period, \( \alpha \) is the smoothing constant, \( A_{](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F5f8ea82e-0162-4b82-ab00-bae6e17c84f7%2Ff9084ab6-a0e1-420d-8012-b3f68df06dde%2Fij3lv1_processed.jpeg&w=3840&q=75)
Transcribed Image Text:### Investment Strategy and Mutual Fund Price Forecasting
**Scenario:**
Vidhya Balan is planning to liquidate her investments in mutual funds and invest in real estate. Before making the change to her investment strategy, Vidhya wants to forecast the price of mutual funds for the next 2 months. She has collected the following data on the average fund prices for the past 10 months:
**Data on Average Fund Prices:**
| Month | Average Fund Price |
|-------|---------------------|
| 1 | 55.1 |
| 2 | 53.8 |
| 3 | 53.4 |
| 4 | 52.95 |
| 5 | 52.15 |
| 6 | 52.75 |
| 7 | 52.65 |
| 8 | 51.5 |
| 9 | 52.25 |
| 10 | 51.7 |
**Forecasting Methods:**
**a. Five-Period Moving Average:**
Using a five-period moving average, forecast the average fund price for Period 11.
**b. Exponential Smoothing:**
Using exponential smoothing with α = 0.3, forecast the average fund price for Period 11. Assume an initial forecast for Month 2 (F2) as 55.10.
Detailed Explanation on Graphs/Diagrams:
In this section, the data provided doesn't include graphs or diagrams, but here is how you can visualize and interpret these concepts:
**Five-Period Moving Average Method:**
1. Calculate the average fund price for the most recent five months.
2. This value will be used as the forecasted fund price for the next period.
**Example:**
For Month 11, average the fund prices from Month 6 to Month 10:
\[ \text{Average} = \frac{52.75 + 52.65 + 51.5 + 52.25 + 51.7}{5} \]
**Exponential Smoothing Method:**
1. Use the formula:
\[ F_t = \alpha \times A_{t-1} + (1 - \alpha) \times F_{t-1} \]
where \( F_t \) is the forecast for the current period, \( \alpha \) is the smoothing constant, \( A_{
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