Forecasting Techniques

Question 1

What is probability analysis?

Answer 1

Used to determine the likelihood of a specific event occurring when several outcomes are possible

• Probability for each outcome is assessed
• The probability of a particular outcome is between 0 and 1

Question 2

What is expected value? How is it calculated?

Answer 2

Long-run average outcome

Determined by calculating the weighted average of outcomes:
- Multiplying the value of each outcome by its probability and then sum the results

Question 3

What is joint probability?

Answer 3

The probability of an event occurring given that another event has already occurred

Determine by multiplying the probability of the first event by the conditional probability of the second event

Question 4

What are the steps for joint probability?

Answer 4

1) . For each combination of events, multiply the probability of the 1st event by the conditional probability of the 2nd event
2) Sum the results of all event combination
3) Divide each result for each event combination by the total of all event combinations

Question 5

What is variance analysis?

Answer 5

Variance analysis measure3s the dispersion of the values around the expected value

The smaller the variance, the more tightly clustered the observations

Smaller variances usually associated with less risk

Question 6

What is correlation analysis?

Answer 6

Measures the strength of the relationship between two or more variables.

The correlation coefficient (R) measure the strength of the relationship (values from -1 to 1). Negative move in opposite relations.

Question 7

What is coefficient of determination?

Answer 7

The coefficient of determination (R^2) indicates the degree to which the behavior of the independent variable predicts the behavior of the dependent variable

Question 8

What is regression analysis?

Answer 8

Predicts the value of one factor based on the value of one or more other factors