What is in the 6900 exam It will help you with the assignment page

page 2 and 23 is like assignmentquestion 5a and b)

page 20 and 21 help with question 6
pages 18 and 19 help with question 7
Students study the wrong things for the exam so ask me if you are not exactly sure about what to study.
My handouts have always been about what is the most important thing in the exam so I have included the
handouts for weeks 7,8,910,11 and 12 in this document.
The later topics are more important than the recent topics so study them first.
It will be much harder than the week 5 and week 8 test because you cannot be provided a similar test to use as a
guide
MY GUESS OF THE FORMAT OF THE EXAM, It does not have this format
14% picking the correct finance formula
4% subbing in the proper numbers into the correct finance formula
4% harder finance
10% NPV IRR (there is a small chance you will do 2 annuity questions instead)
13% for not confusing the standard answers of regression, This is easy marks You just use past papers as a guide
and give the exact answers by using the numbers in the output and giving the exact explanation of the numbers.
14% time series including explaining EXACTLY why increasing the smoothing constant makes the series less
smooth (refer to past exams) , Also note which type of smoothing smoothes the series the best, In this case you
look for the smoothing with the lowest MAD and SSE.

7% simple index numbers INCLUDING EXACT INTERPRETATION

7% not confusing the Laspeyres, Paasche, average of relatives and simple aggregate index numbers and actually
subbing in the numbers properly, Many students do not sub in the numbers properly. . also give exact
interpretation.
5% using the correct confidence interval formula (there are 3 confidence interval formulas) the correct one is
s
PROBABLY going to be a 95% CI with x t
where you use the t-table and it probably wont be
n

x2
because using 2 is to easy
n
x
5% hypothesis testing of the mean, use the formula test statistic =
you have to compare this to a t-table
s/ n
value
2% subbing in the numbers into the confidence interval formula.
7% Using the z table to find a probability, once with a single value so divide by standard deviation and once with
a mean so divide by standard error.
5% From anything in the course.

Week 12 handout
1) Confidence interval harder version And hypothesis testing of the mean question.
Someone doubts that a certain dice is a fair so they throw the dice 16 times and find that the mean is 3.6 and
standard deviation 1.6
a) Find the standard error
b) Find a 95% confidence interval for the mean
c) Test claim mean is above 3.5 using a 5% level of significance
d) What are the assumptions of the test.
Solution n=16, x 3.6 , s=1.6
1.6
a) Standard error =
=0.4
16
n less than 30 and population standard deviation is not given so we must use the t-table instead of the number 2
Use t-table row= df=n-1=15, column =0.025 and get the value 2.1315
Between 3.6-2.13150.4 and 3.6+2.13150.4
So we are 95% confident the mean is between 2.75 and 4.45
c) H0: =3.5, H1: >3.5
Use row= df=n-1=15, column =0.05 and get the value 1.753
3.6 3.5
Test statistic =
0.25
0.4
The test statistic is not above the critical value so we do not reject H0.
So we do not have strong evidence the mean is above 3.5
d) We need to assume the data is normally distributed.

2) 6900 only exam question NPV viability and IRR

Project 1 has initial outlay $100,000 and yearly returns of $60,000 and $70,000
Project 2 has an initial outlay of $200,000 and yearly returns of $100,000 and $150,000
(a) Find NPV of each project if interest is 10% and comment
(b) Find NPV of each project if interest is 20% and comment
(c) Find the IRR of each project and comment
(d) What are the disadvantages of only using NPV to compare projects or only using IRR to compare projects.
Solution
(a) Project 1 NPV if interest is 10%
-100,000+60,000(1.1)-1+70,000(1.1)-2= $12396.69
Project 2 NPV if interest is 10%
-200,000+100,000(1.1)-1+150,000(1.1)-2=14876.03
Comment: Both projects are viable because they both have positive NPV,
If you only consider NPV Project 2 is better because it has the higher NPV
(b) Project 1 NPV if interest is 20%
-100,000+60,000(1.2)-1+70,000(1.2)-2= -$1388.89
Project 2 NPV if interest is 20%
-200,000+100,000(1.2)-1+150,000(1.2)-2=-$12500
Comment: Both projects are not viable because they both have a negative NPV,
If you only consider NPV Project 1 is not as bad as project 2 because you lose less money with project 1
(c ) Project 1 IRR
N I N 2 I1 12396 .69 0.2 (1388 .89 ) 0.1
0.1899
IRR = 1 2
=
12396 .69 (1388 .89 )
N1 N 2
Project 2 IRR
N I N 2 I1 14876 .03 0.2 (12500 ) 0.1
0.1543
IRR = 1 2
=
14876 .03 (12500 )
N1 N 2
Comment project 1 has a higher IRR, so if you are only considering IRR project 1 is better.
(d) NPV and IRR do not consider the initial outlay and how long you have to wait for profit. (see lecture notes for
other comments)

Sinking fund example You do not need to know what a sinking fund is but you do have understand the phrase
interest only is paid every quarter
1) A sinking fund is set up to pay off the principal of a $20000 loan in ten years time.
Suppose interest on the loan is 12% compounded quarterly. The sinking fund has interest of 10% where the
payments are quarterly.
The term of the loan is interest only is paid every quarter.
(a) What is the interest paid
(b) How much has to paid into the sinking fund each quarter
(c) What is the total amount paid each quarter.
Solution
(a) i.=0.12/4=0.03, So amount paid every quarter is 200000.03=$600
20000 0.025
$296 .72
(b) i.=0.10/4=0.025, n=104=40, So R
(1.025 ) 40 1
(c) 296.72+600=$896.72

WEEK 9 FINANCE
YOU CAN BRING IN 2 A4 PAGES (BOTH SIDES) OF NOTES INTO EXAM, I GIVE NO MARKS FOR
ONLY GIVING THE FORMULA SUCH AS S P(1 i ) n OR
iP
R
[1 (1 i ) n ]
Sample finance questions
1a) Sue Invests $1000 for 5 years at 12% p.a. compounded monthly, what is the final amount?
b) John Invests $20,000 for 10 years at 12.4% p.a. compounded quarterly, what is the final amount?
c)Calculate and interpret Sues effective interest rate for investing for 1 year.
d)Calculate Johns effective interest rate for investing for 1 year and explain it in the context of the problem.
e)Use the effective interest rates to work out who is getting a better deal (WARNING IN THE EXAM THEY
WILL JUST ASK PART (E) THEY WILL NOT HELP YOU BY MAKING YOU DO PARTS c) and d)
SOLUTION
a) interest per month i = 0.12/12=0.01, number of months in 5 years n=512=60
Final amount =1000(1+0.01)60=$1816.70
b) interest per quarter i = 0.124/4=0.031, number of quarters in 10 years n=410=40
Final amount =20000(1+0.031)40 =$67822.94
c) interest per month i = 0.12/12=0.01
number of months in 1 year = 12
Effective rate= (1+0.01)12-1=0.1268=12.68.%
If you invest at 12% p.a. compounded monthly your money will grow by 12.68% every year
d) interest per quarter i = 0.124/4=0.031
number of quarters in 1 year = 4
Effective rate= (1+0.031)4-1= 0.1299=12.99.%
If you invest at 12.4% p.a. compounded quarterly your money will grow by 12.99% every quarter
e) Investing at 12.4% compounded quarterly is better than investing at 12% compounded monthly because it has a
higher interest rate
YOU NEED TO UNDERSTAND QUESTION 2 AND 3 ARE VERY DIFFERENT TO QUESTION 1 THEY
ARE USING A TOTALLY DIFFERENT FORMULA
2) A small business borrows $60000 which is to be repaid monthly over a five year period. Assume
interest is constant at 24% per annum, payable monthly. Find the monthly repayment required
assuming payments are made at the end of each month.
Solution
Number of payments =512=60, interest between each payment =0.24/12=0.02,
Amount borrowed = 60000
Size of repayments =

0.02 60000
$1726 .07
[1 (1 0.02 ) 60 ]

3) Mortgage/Home loan question

I Borrow $300,000 to buy a house. What is the size of the monthly repayments if the interest is 6%
p.a. compounded monthly and the term of the loan is 25 years?
Solution
Number of payments =2512=300, interest between each payment =0.06/12=0.005,
Amount borrowed = 300000
Size of repayments =

0.005 300000
$1932 .90
[1 (1 0.005 ) 300 ]

Week 10
1) Find the net present value of an investment where I have to initially pay $10,000 but I will get a return of
$6,000 next year and $8,000 in two years time if interest is 10% compounded yearly
2)a) Fred has agreed to repay a $74,000 reducing balance loan with quarterly installments
over 20 years at 8% compounded quarterly. Find the installment value.
b) If Sue has borrowed a total $100,000 what are the weekly repayments in interest is 7.3% compounded daily
and the term is 10 years
c) Find and interpret the effective rate for Fred and Sue, Which person is getting a better deal in terms of effective
interest rate?
3) I invest the sum of $2500 for 10 years. What is the final amount if interest is 3.65% compounded daily
Solution
1) Net present value =-10,000+6,000(1.1)-1+8,000(1.1)-2=2066.12
2a) P=74000, n = 204=80, i= 0.08/4=0.02
R=0.0274000/(1-(1.02)-80)=$1861.89
b) P=100,000, n =payments= 5210=520
Interest between each payment .i= (1+0.073/365)7-1=0.0014 **NOTE THE EXAM MARKER KNOWS THIS
IS TRICKY SO THERE IS A SMALL MARK PENALY FOR GETTING IT WRONG
R=0.0014100,000/(1-(1.0014)-520)=270.86
c) Fred is 8% compounded quarterly
Quarters in 1 year = 4, Interest per quarter = 0.08/4=0.02
Effective yearly rate = (1+0.02)4-1=0.0824=8.24%
So Freds debt grows by 8.24% every year
Sue is 7.3% compounded daily
Days in 1 year = 365, Interest per day = 0.073/365=0.0002
Effective yearly rate = (1+0.0002)365-1=0.07572=7.522%
So Sues debt grows by 7.522% every year
If it is a loan You want the lowest effective rate, If you are making an investment you want the highest effective
rate Since Sue and Fred have a loan Sue has the better deal.
3) P=2500, n = 10365=3650, i= 0.0365/365=0.0001
S=2500(1+0.0001)3650=3601.22

ON RESOURCE DRIVE , LECTURE FOLDER WEEK 10 handout.

A)Dave invests 1000 for 2 years at 5.2%p.a compound weekly what is the final amount
P=1000, n = 252=104 , i= 0.052/52=0.001
S=1000(1+0.001)104=1107.33
B)Fred invests 75 for 3 years at 5%p.a compound quarterly what is the final amount
P=75, n = 34=12 , i= 0.05/4=0.0125
S=75(1+0.0125)12=87.06
C) Find and interpret Dave and Freds effective interest rates, which is the best
Dave is 5.2 % compounded weekly
Weeks in 1 year =52 , Interest per week = 0.052/52=0.001

Effective yearly rate = (1+0.001)52-1=0.0533=5.33% (2 marks)

So Daves money grows by 5.33% every year (1 mark)
Fred is 5% compounded quarterly
Quarters in 1 year = 4, Interest per quarter = 0.05/4=0.0125
Effective yearly rate = (1+0.0125)4-1=0.05095=5.095% (2 marks)
Fred money grows by 5.095% every year (1 mark)
Dave has best deal because he has the higher effective rate (2 marks)

Week 11 handout
Every student clearly showed that they were not approaching the course in the way we want you to, AND WILL
LOSE ABOUT 10% IN THE FINAL EXAM for using the wrong approach. (
WARNING FOR FINAL EXAM YOUR METHOD FOR CONFIDENCE INTERVALS FOR THE MEAN
IS WRONG (IT IS TO SIMPLE YOU CAN ONLY USE Z=2 FOR a 95% CI for proportions of if is
given).
For regression and confidence intervals for the mean with small sample size and unkown standard deviation you
use t-table So you have to check the normality assumption (for regression there are other checks as well).
Sample finance questions
1) Suppose Interest is 12% compounded quarterly. If I need to borrow $10,000 to buy a car and I make a $5,000
dollar payment in 1 years time and a final payment in two years time
(a) Find the value of the final payment
(b) Find and interpret the effective rate of interest
2) I borrow $200,000 to buy a water jetpack.
(a) What are the monthly installments if interest is 12% compounded monthly and the term is 20 years
(b) After 15 years the interest rate changes from 12% compounded monthly to 6% compounded monthly. What is
the value of the new repayments.
3) I invest the sum of $1000 how much do I have after 10 years if interest is 10.4% compounded weekly
4) I invest $1000 every week, What is the of the sum of the future value of my investments after 10 years.
Interest is 10.4% compounded weekly.
1a) Let the final payment be X
10,000=5,000(1.03)-4 +X(1.03)-8
10,000= 4442.44+X(0.7894)
So X = 7040.23
b) 4Quarters in 1 year, interest is 0.12/4=0.03 per quarter so effective rate is (1.03)4-1=0.1255=12.55%
2) a) number of payments n=1220=240, interest between each payment i= 0.12/12=0.01
0.01 200 ,000
R=
= $2202.17
(1 1.01 240 )
b) Payment left after 15 years = 512=60, .i=0.01,
2202 .17 (1 1.01 60 )
amount owing after 15 years =
=98,998.64
0.01
For the final 5 years number of payments n=512=60, interest between each payment i= 0.06/12=0.005
0.005 98998 .64
R=
= $1913.92
(1 1.005 60 )
3) number of compoundings n=5210=520, interest rate .i= 0.104/52=0.002
S=1000(1.002)520= 2826.28
4) number of payments n=5210=520, interest between each payment i= 0.104/52=0.002
1000 ((1.002 ) 520 1)
S=
= $913,140.04
0.002

Week 11 handout harder finance questions

Harder question
If I borrow $3,000 to buy a new computer and I make monthly repayments of $50 how long does it
Take to pay of the loan if interest is 12% compounded monthly
Solution
R = 50, P=3000, .i=0.12/12=0.01
n

log ( R iP) R log (50 0.01 3000 ) 50

92 .08
log 1 i
log 1 0.01

So 93 payments so 93 months, this is 93/12=7.75 years so 7 years and 9 months

Another harder question

A $200,000 conventional variable-rate mortgage has monthly payments over 30 years and the interest
rate is 4.4% p.a. payable monthly
(a) What is the size of the repayment ?
(b) What is the outstanding balance at the end of two years with this interest rate (assuming all
monthly payments have been paid)?
(c) After two years, the interest rate for this mortgage is changed to 6.5%.
What is the new monthly payment amount (payable for 28 years) at the
new interest rate of 6.5%?
Solution a) number of payments n=1230=360, interest i= 0.044/12=0.00367
0.00367 200 ,000
R=
= $1001.99
(1 1.00367 360 )
b) Payment left after 2years = 2812=336, .i=0.00367,
1001 .99 (1 1.00367 336 )
amount owing after 2 years =
=193,288.37
0.00367
c) number of payments n=2812=336, interest i= 0.065/12=0.00542
0.00542 193 ,288 .37
R=
= $1251.11
(1 1.00542 336 )
.

WEEK 8 HANDOUT.
INDEX NUMBERS SAMPLE QUESTIONS
1) Find and interpret the simple index number for bread using the year 2000 as the base.
Food item
Year 2000 $Price
Year 2010 $Price
Bread
2.00
3.00
Solution: simple index = 3/2=1.5 So the bread price has increased by 50%
2) Using the information below
a)Find and interpret the Laspeyres index of Prices uses the year 2000 as the base.
b) Find and interpret the Paasche index of Prices using the year 2000 as the base.
c) State the disadvantages of each index
Food item
Year 2000 Year 2000
Year 2010
Year 2010
$Price
Quantity
$Price
Quantity
Bread
2.00
10
3.00
12
Chocolate
4.00
1
5.00
3
Solution

3 10 5 1
1.46 so the price of food items has increased by 46%
2 10 4 1
3 12 5 3
b) Paasche index=
1.42 so the price of food items has increased by 42%
2 12 4 3
c) Laspeyres index overweights quantities that increase in price, The Passche under weights quantities that
decrease in price (NOTE FOR STUDENTS This is a direct quote from lectures this is acceptable because you are
commenting on the disadvantages of a method)

a) Laspeyres index=

3) Find the simple price index numbers using the year 2004 as the base and explain it in the context of the
problem
Year
USB Price
2004
100
2006
50
2010
10
Solution:
for 2006 the simple index = 50/100=0.5 So the USB price has decreased by 50% when you compare 2010 to 2004
for 2010 the simple index = 10/100=0.1 So the USB price has decreased by 90% when you compare 2010 to
2004
4) Using the information below
a)Find and interpret the Laspeyres index of Prices uses the year 2004 as the base.
b) State the differences between the Laspeyres Index and the Paasche Index.
Food item
Year 2004 $Price
Year 2004 Quantity
USB
100
2
Blank CD
1.20
10
Solution

Year 2010 $Price

10
1.18

10 2 1.18 10
0.15 so prices have decreased by 85% when you compare 2004 to 2010
100 2 1.2 10
b) Laspeyres Uses the base year quantities as the weights and Paasche uses the current year quantities as the
weights

a) Laspeyres index=

WEEK 8 HANDOUT
3)A hospital buys four products with the following characteristics:
Price paid per unit ($)
Product

Year 2001

Year 2002

Bandages

10

11

Saline solution

23

25

Sheets

17

17

Thermometers

19

20

a) Find the average of relatives index number for 2002 using 2001 as the base
b) Find the simple aggregate index number for 2002 using 2001 as the base year
solution
a) *** Note you do not need this much setting out in the exam****
Price paid per unit ($)
Items
Bandages

Year 2001
10

Year 2002
11

Thermometers

23

25

Sheets

17

17

Bedpans

19

20

Index for 2002 using 2001 as the base

11/10=1.1
25/23=1.09
17/17=1
20/19=1.05

Average or relatives=average of indexes =(1.1+1.09+1+.05) /4=1.06

b)The simple Aggregate index is the sum of the current year prices divided by the sum of the base year prices
Simple aggregate Index

11 25 17 20 73

1.058
10 23 17 19 69

1) The advertising expenditure by a supermarket was recorded over a five year period
(a) Find the simple index numbers using year 2001 as the base
Year

2001

2002

2003

2004

2005

Advertising ($)

3000

5880

6600

8250

9240

(a) Find the simple index numbers using year 2001 as the base
(b) Find the simple index numbers 2003 as the base year
Solution, NOTE THAT MULTIPLYING BY 100 IS AN OPTIONAL STEP YOU DONT HAVE TO DO IT
Year

2001

2002

2003

2004

2005

196

220

275

308

(a) Simple Index 2001 as base year

3000/3000100= 100

(b) Simple Index Using 2003 as a base year

6600/3000100= 45.5 89.1

100

125

140

6900 handout for the tutorial week 9

1) Quartely sales for 3 years are given in the plot below, A linear trend line was fitted to the data. and was found
to be Y = 310-10 X
The seasonal indices are
Quarter
1
Index
0.8

2
1.01

3
0.99

4
1.2

Sales

400
300
200
100
0
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
2008 2008 2008 2008 2009 2009 2009 2009 2010 2010 2010 2010
Quarter

1.3
Detrended Sales

1.2
1.1
1
0.9
0.8
0.7
0.6
0

10

Time

a)
b)
c)
d)
e)
f)
g)
h)

Identify the Independent variable and dependent variable in the regression line.
Interpret seasonal index for quarter 1
Predict sales for quarter 1 2011 The regression line
Predict sales for quarter 1 2011using regression line and the index number
Predict sales for quarter 2 2011The regression line
Predict sales for quarter 2 2011using regression line and the index number
Comment on the time series
Did we use a Multiplicative model or an additive model

12

14

6900 tutorial handout

Solution
a)
The independent variable is Time and the dependent variable is Sales
b)
Sales in quarter 1 are 20% lower than the regression line on average
c)
Sales = 310-1013=180
d)
1800.8=144
e)
Sales = 310-1014=170
f)
1701.01=171.7
g)
*there is a Strong seasonal component, Quarter 4 has high sales and quarter 1 has low sales
*No apparent cyclic component
*Irregular component, there are minor variations each year
*There is a decreasing trend component since the prices are decreasing as time increases.
h)
Since the points are scattered about 1 in the Detrended plot, We are using the multiplicative model.

2) Using the information below

a)Find and interpret the Laspeyres index of Prices uses the year 2000 as the base.
b) Find and interpret the Paasche index of Prices using the year 2000 as the base.
c) What is the difference between The Laspeyres index and the Paasche index
Share Price
Toyota
Coco Cola
Google
Solution

2004 Share
Price
5
35
100

2004
quantity

2010 share
price
40 6
60 41
0 600

2010 quantity
15
83
2

6 40 41 60 600 0
1.17 so the price of has increased by 17%
5 40 35 60 100 0
6 15 41 83 600 2
b) Paasche index=
1.48 so the price of shares has increased by 48%
5 15 35 83 100 2
c) Laspeyres index uses the old quantities as weights whereas
Paasche uses current quantities as the weights

a) Laspeyres index=

3) Using the information below

a)Find and interpret the simple index number for Bread Using the year 2000 as the base year
b) Find and interpret the simple index number for Bread Using the year 2000 as the base year
c) Find the average of relatives index for Food items and explain the value in the context of the problem.
Food item
Year 2000 Year 2010
$Price
$Price
Bread
2.00
3.00
Chocolate
4.00
5.00
Solution
a) 3/2=1.5 so the price of bread has increased by 50%
b) 5/4=1.25 so the price of chocolate has increased by 25%
c) Find the average of all the index numbers, the average is
37.5%

1.5 1.25
1.375 so prices have increased by
2

WEEK 8 HANDOUT 1 page 1

Sample time series question,
1) Smooth the following series with a 3 point moving average, Exponential smoothing with smoothing
constant w=0.2 and exponential smoothing with w=0.7 and plot the original series with the smoothed
series.
Attendance in
'000's
35
23
45
32
38
73
59
61

Attendance

Week
1
2
3
4
5
6
7
8

80
70
60
50
40
30
20
10
0
0

10

Week

Solution NOTE THAT I HAVE ONLY GIVEN YOU SOME OF THE VALUES BECAUSE THAT IS WHAT
HAPPENS IN THE EXAM.

Week
1
2
3
4

Attendance
in '000's
35
23
45
32

5
6
7
8

38
73
59
61

Exponentially smoothed
= 0.2
35
34.33
32.60
33.33
35.08
38.33
34.46
0.2*38+(1-0.2)34.46
(32+38+73)/3=47.67 =35.17
56.67
42.74
64.33
45.99
48.99
Moving Average

Weekly Football Attendance

Exponentially
Smoothed, = 0.7
35
26.60
39.48
34.24
0.7*38+(1-0.7)34.24
=36.87
62.16
59.95
60.68

C has missing values so it

Must be the moving average

D is the least smooth so it is

80.00
The original series
70.00

Attendance

60.00
A

50.00

40.00

C
D

30.00
20.00
10.00

B has the less smoothing

relative to
0.00
A so it is so it is exponential
1
2
3
smoothing with the higher value so it
has smoothing w=0.7

Week

Series A has the most smoothing so

it is so it is exponential smoothing
with the lowest value so this is
exponential smoothing with w=0.2

WEEK 8 HANDOUT 1 page 2

2) Time series question, Consider the time series plot and corresponding detrended plot for quarter sales data
Starting at quarter 1 2002 and finishing in quarter 4 2006 (So 5 years of data)
Original data
Detrended sales plot

Sales $'000s

1320
1220
1120
1020
920
820
720
620
520
420

10

20

Time (quarters)

30

10

15

Time
The regression line to model the trend component is Y = 480+20X
Quarter
1
2
3
4
Index
0.99
1.2
0.98
0.83
i) Identify the Independent variable and dependent variable in the regression line.
j) Interpret seasonal index for quarter 1
k) Predict sales for quarter 1 2007 The regression line
l) Predict sales for quarter 1 2007 using regression line and the index number
m) Comment on the time series
n) Did we use a Multiplicative model or an additive model
Solution
a)
The independent variable is Time and the dependent variable is Sales
b)
Sales in quarter 1 are 1% lower than the regression line on average
c)
Sales = 480+2021=900
d)
9000.99=891
e)
Strong seasonal component, Quarter 2 has high sales and quarter 4 has low sales
No apparent cyclic component
Irregular component, there are minor variations each year
There is an increasing trend component
f) Since the points are scattered about 1 in the Detrended plot, We are using the multiplicative model.

20

Week 8 handout 2, The sort of time series question you USUALLY get in the exam.
Time series question: A key performance indicator for the tourism industry is the quarterly room night occupancy figures
for accommodation. The table below shows the number of room nights occupied in Australia for each quarter from
2001 to 2003. The graph shows the quarterly data from 2001 to 2006. Also shown are two smoothed series of the
original data, including 4-point moving average and a centred moving average.
a) Determine the respective smoothed values for the missing data points.
b) Explain why it was appropriate to use a centred moving average in this case.
c) Which of the two smoothed series has been plotted with the original data below?
d) What is the purpose of smoothing data such as this?
e) Identify the time series components that are evident in the plot below.
f) Which Smoothed time series fits the data best.
g) What is the effect of making the smoothing constant w smaller?

Qtr

Occupancy

1 2001
2

4-Pt M.A

4pt centered
MA

10088

Exp smooth
w=0.4

10088

10000

10052.8
10270

10449

10282.63

10211.3

10279.38

10344

10284.75

10282

10300.13

--------

10324.13

10318.6

------------

10389.6

-----------4

10543
10263.5

1 2002

10189
10306

9873
10294.25

10619
10354

10496
10341.75

1 2003

10428

Measures of accuarcy
4pt centered MA

Exp smooth w=0.4

MAD=5 SSE=36

MAD=9 SSE=92

10361.63

10404.9
MAD=5 MAD=9
SSE=36 SSE=92

a) 4-Pt M.A = (10000+10449+10543+10189)/4 = 10295.25

CMA (4 point centered moving average)= (10354.0+10341.75)/2 = 10347.88
Exponential smoothing (using w=0.4) = 0.4 9873+0.610282=10118.4
nd

rd

b) When calculated a 4-Pt MA is placed between the 2 and 3 quarters. This becomes a problem when
rd
th
plotting. Centring these 4-Pt MAs results in mapping them against 3 quarter, 4 quarter, etc. This results
in more regular plots, easy to interpret, etc
c) The Centred Moving Average
d) Smoothing data such as this smoothes out seasonal and irregular components in a time series and tends to
highlight the trend.
e) There is a general positive trend over the 5-year period.
rd
th
The seasonal patterns are very clear with major peaks occurring in the 3 and 4 quarters and distinct trough in the
nd
2 quarter.
There is no clear evidence of any cyclical pattern.
The differing sizes of the peaks and troughs represent the irregular component of the time series.

f) the center moving average has the lower MAD and SSE so it is a better fit
g) If w get smaller then there is less weight placed on the original values so the series will become more smooth

Week 7 handout

The sample slope 1 =b1 estimates the population slope 1

The sample intercept 0 =b0 estimates the population intercept 0

The standard error of the line y 0 1x will always be given it measures how close the points
are to the line.
The sample slope and sample intercept are called the coefficients, you are given a standard error
next to the coefficient this tells you an idea of how close the sample coefficient is to the
population coefficient

1) Using the data below

(a) State the regression line
(b) Predict sales in January 2011 (this is time 5)
(c) Test the claim that time is a useful predictor
(d) Do you think the model is a good model
(e) Interpret the coefficient of determination
(f) Comment on the relationship
(g) Interpret the slope
Year

month Time

2010
Sep
2010
Oct
2010
Nov
2010
Dec
SUMMARY OUTPUT
R Square
0.995
Standard Error 1.162

1
2
3
4

Sales
90
82
70
61

Standard
Coefficients
error
P-value
100.5
15 0.0002
-9.9
2 0.0027

Intercept
Time
Solution
(a) Sales = 100.5-9.9 Time
(b) Sales =100.5-9.95=51
(c) H0: 1=0 H1: 10
The pvalue is 0.0027 this is less than 0.05 so we have strong evidence the slope is significantly
different to zero so we have strong evidence that Time is a useful predictor
(d) The model is a good model since the slope is significantly different to 0 (pvalue < 0.05)
The standard error is smaller than the spread of the y values and the R squared is high
(R2>0.64 so strong
Relationship)
(e) R2=0.995 so 99.5% of variation in sales is explained by the line
(f) Strong negative linear relationship

(g) Increasing time by 1month decreases sales by 9.9units

2) Using the data below

(a) State the regression line
(b) Predict sales in January 2011 (this is time 5)
(c) Test the claim that time is a useful predictor
(d) Do you think the model is a good model
(e) Interpret coefficient of determination
(f) Comment on the relationship
(g) Interpret the slope
Year

month Time

Sales

2010
Sep 1
81
2010
Oct
2
100
2010
Nov 3
90
2010
Dec 4
80
SUMMARY OUTPUT
R Square
0.018
Standard Error
11
CoefficientsStandard error P-value
Intercept
102
20 0.041
Time
-2
4 0.865
Solution
(a) Sales = 102- 2Time
(b) Sales =102-25=92
(c) H0: 1=0 H1: 10
The p=value is 0.865 this is not less than 0.05 so the slope is not significantly different to zero
so we do not have evidence that Time is a useful predictor
(d)The model is a not a good model since the slope is not significantly different to 0 (pvalue
>0.05)
The standard error is not smaller than the spread of y values and the R squared is low
(R2<0.04 so weak/no
Relationship)
(d) R2=0.018 so 1.8% of variation in sales is explained by the line
(e) Non linear trend (not a straight line)
(f) Increasing time by 1 month decreases sales by 2

5) Suppose we have performed a regression where the Toyota return is the y variable (the dependent variable)
and Honda return is the x variable (the independent variable) and we obtained the output below. (We used
percentage units)
Regression Statistics
R Square

0.98

Standard Error

0.06
Coefficients

Intercept
Honda

(a)
(b)
(c)
(d)

0.01
0.99

standard error
P-value
0.007
0.31
0.05 4.50E-89

State the regression equation

Interpret the gradient
Predict the Toyota return if the Honda return is 0.5 (using percentage units)
Test the claim that the slope is different to 0

(a) Toyota = 0.01+ 0.99Honda

(b) If Honda increases by 1 percentage unit then Toyota increases by 0.99 percentage units
(c) Toyota = 0.01+ 0.990.5=0.505 percentage units
(d) H0: 1=0 H1: 10
The pvalue is 4.50E-89 this is less than 0.05 so we have strong evidence the slope is significantly different to
zero so we have strong evidence that Honda is a useful predictor

These last two questions are index number questions they should help you understand what interpret means.
5) Find and interpret the simple index number for bread using the year 2000 as the base.
Food item
Year 2000 $Price
Year 2010 $Price
Bread
2.00
3.00
Solution: simple index = 3/2=1.5 So the bread price has increased by 50%
6)Find and interpret the simple index numbers for taxis using 2007 as a base
Year
Price$
2007
2.00
2008
2.20
2009
2.40
Solution
(a) 2008 Index = 2.2/2=1.1 so prices have increased by 10%
2009 Index =2.4/2=1.2 so prices have increased by 20%

1.

The selling price of a house can depend upon many factors. A study of recent selling prices for a sample of Ballarat
houses took into consideration the size of the house, the age of the house and the size of the land upon which the house
was built. Correlations were obtained for each of the variables and are shown in the output below.
Size
Age
Land

Price
0.849
-0.589
0.247

Size

Age

-0.809
-0.171

0.410

a) Which variable correlates highest (highest strength) with Selling price?

b) Is the relationship in part (a) positive or negative?
c) What does the answer to (a) and (B) mean in terms of the two variables?
d) Which two variables show the least correlation?
e) Explain why you think the variables in b have low correlation

answer
1.

a) Size (r=0.849 has the largest absolute value) ; b) Positive; c) As the size of the house increases so to does the price.;
d) Between size and land; (the absolute value of -0.171 is 0.171 this is the smallest) e) Perhaps people tend to build a
house they can afford regardless of the size of the land and buy a block of land they can afford, regardless of the size
of the house they intend to build.

Sample final exam hypothesis test question

1)In a sample of 235 babies where the father was a dwarf and the mother was not a dwarf the baby was a dwarf
108 cases. Test the claim the proportion is different to 50%. Use a 5% level of significance.
0.51 0.5
108
Solution : n=235, p
=0.0326
0.46 , standard error is =
235
235
H0: p=0.5, H1 :p0.5
We have to use the t-table, but for proportion use z which is t with df=
Using the z row (bottom row) of the t-table, we need 0.05/2=0.025 on each side so use column 0.025

test stat z=

p p

0.46 0.5

0.46 0.5 0.04

=
=-1.23,
0.0326
0.0326

p (1 p )
0.5(1 0.5)
n
235
The test stat is not in the rejection region so do not reject H0
There is not strong evidence the proportion is different to 50%

Note that z scores can give probabilities as well so if you were asked what is the probability
That the sample proportion of dwarves is less than 46% if you have a sample of 235 babies and
the proportion of dwarves is 0.
solution
p p
0.46 0.5
0.46 0.5 0.04

z=
=
=
=-1.23,
0.0326
0.0326
p (1 p )
0.5(1 0.5)
n
235
so probability P(Z<-1.23) = 0.5-0.3907=0.1083

If I borrow $6000 how many repayments do I have to make

If I make a $2000 repayment each month
and interest is 24% pa compounded monthly?
Solution , i = 0.24/12=0.02 , P=6000, R=2000,
log(( R iP) / R)
log(( R iP) / R)
log(( 2000 0.02 6000 ) / 2000 )
n

3.12
log(1 i )
log(1 i )
log(1.02 )
So you have to make 4 payments
Since 3.12 payments is would be 3 payments of 2000 and one smaller payment.
You can think of payments as delicious donuts.

If you see 3.12 delicious donuts there are 4 things not 3 things.
1.

Student marks depend on many factors

Study
Drugs
Prayer

Marks Study
Drugs
0.9
-0.95 -0.809
0.01 -0.2
0.3

a) Which variable has the highest correlation

b) Is the relationship in part (a) positive or negative?
c) What does the answer to (a) and (B) mean in terms of the two variables?
d) Which two variables show the least correlation?
e) Explain why you think this may be so
Answer
A)Marks and drugs
B) negative
C) Increasing drugs decreases marks
D) prayer and marks
E) Increasing prayer simply wont help you in exams.

Hypothesis testing question similar to task 5b of the assignment and hypothesis testing
question in the exam.
1) In a sample of 25 people the mean wage $40,000 with standard deviation $5,000
e) Find the standard error
f) Find a 95% confidence interval for the price
g) Test claim mean is less than $39,000 use a 5% level of significance
h) Test claim mean is less than $30,000 use a 5% level of significance
i) Discuss the assumptions of the tests in parts c and d.
Solution n=25, x 40000 s=5,000
5000
a) Standard error =
=1000
25
b) we estimate the population mean is between
40000 2.063910 and 40000+2.06391000
so between 37936.1 and 42063.9
YOU DO NOT NEED TO WRITE THE FOLLOWINING IN THE EXAM JUST UNDERSTAND IT
Use the t-table column n-1=24 column 0.025 and get the value 2.0639
We are 95% confident the population mean is within 2.306 standard errors
c) H0:: =39000, H1:: >39000
40000 39000
=1
1000
We are testing that the mean is more than 41000 however the test statistic is
not more than the critical value of 1.7109
So we do not reject H0
So there is not strong evidence the mean is more than $39000

Test statistic =

** NOTE TO STUDENTS YOU DO NOT NEED TO WRITE THE FOLLOWINING IN THE EXAM JUST
UNDERSTAND IT
The critical value comes from the t table row n-1=24, column 0.05 and get critical value 1.710
You are using the 0.05 column because you are using a on sided test,
d) H0:: =30000, H1 >30000
40000 30000
=10
1000
We are testing that the mean is more than 41000 and the test statistics is more than the critical value
of 1.7109
So we do reject H0
So there is strong evidence the mean is more than 30000

Test statistic =

What to discuss if the question asks you about assumptions required for a ttest (the comments for regression are similar)
Heights are normally distributed so the assumptions required for hypothesis tests and confidence intervals on
small samples are are met.

Wages not normally distributed so the assumptions required for hypothesis tests and confidence intervals on small
samples are not met,

For example if you have the sample 70,80,50,60,2000

The average is (70+80+50+60+2000)/5=452 which is above most the values, You estimate of the mean and
standard deviation are not reliable so you will have severe problems when using the formula

Or the confidence interval for small n

*
between
and
where t is the value from the t-table
The assumptions required for hypothesis tests and confidence intervals is not met