Use the following to answer the question(s) below.
The monthly returns on a social choice portfolio comprised of "green" companies are shown below for the last six months of 2015.
Month Monthly Return
July 2.2 %
August 2.5
September 1.8
October 1.4
November 1.1
December 1.9
-Use a single exponential smoothing (SES) model with α = 0.8 to forecast for January 2016. Assume that the forecast for December 2015 was 1.18%.
A) 1.50
B) 1.18
C) 1.76
D) 1.90
E) 2.20

Question

Quizplus · Accepted Answer

Using single exponential smoothing (SES) with α = 0.8, we have: 
Ft+1 = α (At) + (1-α)(Ft)
Where:
- Ft+1 = forecast for January 2016 
- At = actual return for December 2015 = 1.9% 
- Ft = forecast for December 2015 = 1.18%
Plugging in the values, we get:
Ft+1 = 0.8 (1.9) + 0.2 (1.18) = 1.76%
Therefore, the best choice is C, which is 1.76%.

Use the Following to Answer the Question(s) Below