TABLE 16-5
A contractor developed a multiplicative time-series model to forecast the number of contracts in future quarters, using quarterly data on number of contracts during the 3-year period from 2006 to 2008. The following is the resulting regression equation:

-Referring to Table 16-5, the best interpretation of the coefficient of X (0.117) in the regression equation is:
A) the quarterly compound growth rate in contracts is around 30.92%.
B) the annual compound growth rate in contracts is around 30.92%.
C) the quarterly compound growth rate in contracts is around 11.7%.
D) the annual compound growth rate in contracts is around 11.7%.

Question

TABLE 16-5
A contractor developed a multiplicative time-series model to forecast the number of contracts in future quarters, using quarterly data on number of contracts during the 3-year period from 2006 to 2008. The following is the resulting regression equation:
  
-Referring to Table 16-5, the best interpretation of the coefficient of X (0.117) in the regression equation is:
A) the quarterly compound growth rate in contracts is around 30.92%. 
B) the annual compound growth rate in contracts is around 30.92%. 
C) the quarterly compound growth rate in contracts is around 11.7%. 
D) the annual compound growth rate in contracts is around 11.7%.

Quizplus · Accepted Answer

The coefficient of X (0.117) represents the quarterly compound growth rate in contracts. To calculate the annual compound growth rate, we need to raise the quarterly rate to the power of 4 (since there are 4 quarters in a year). Therefore, the annual compound growth rate is (1 + 0.117)^4 - 1 = 0.3092, or around 30.92%.

TABLE 16-5 a Contractor Developed a Multiplicative Time-Series Model to Forecast the Forecast