Moving averages are often used in an effort to identify movements in share prices.
Approximate monthly closing prices (in Sh. per share) for Toys Children Ltd. for
December 2000 through November 2001 are shown below:
Month Price (Sh)
December
January
February
March
April
May
June
July
August
September
October
November
2000
2001
2001
2001
2001
2001
2001
2001
2001
2001
2001
2001
40
38
39
41
36
41
34
37
35
37
40
41
Required:

(a) Use a 3-month moving average to forecast the closing price for December
2001.
(5 marks)
(b) Use a 3-month weighted moving average to forecast the closing price for
December 2001. Use weights of 0.4 for most recent period, 0.4 for the second
period back and 0.2 for the third period back.
(5 marks)
(c) Use exponential smoothing with a smoothing constant of α = 0.35 to forecast
the closing price for December 2001. (5
marks)
(d) Which of the three methods do you prefer? Why? (5
marks)