QTB – May 2016 – L1 – SB – Q3 – Statistics

This question involves using the least squares method to fit a trend line for annual expenditures and make future forecasts.

Question

The annual expenditures (N’000) of a family from 2000 to 2009 were as follows:

Required:
a. Setting year 2000 as $x = 0$ , fit the least squares line for the annual expenditures.
(15 marks)

b. Forecast what the expenditure will be in the years:
i. 2012 (2½ marks)
ii. 2016 (2½ marks)

Answer

Let the regression model be y = a + bx

b. Forecast:

(i) In 2012, x = 12 and y = 596.73 – 7.94 (12) = 501.45

i.e y = N501,450

(ii) In 2016, x = 16 and y = 596.73 – 7.94(16) = 469.69

i.e = N469,690