DUE DATE: OCTOBER 8, 2020

INSTRUCTION:
This is a group assignment. You can choose your group partners. Each group should have u
should work together on every question to understand how to do each step. You can also
Please submit your group’s assignment via the Dropbox tool on the course website by 11:5
assignment should indicate your section, your group number, your name(s) and your stud

Note:
You can either submit one word file (containing your answers) and one Excel file (containi
or submit only one Excel file (containing both your answers and Excel outputs)
You should clearly answer each question to get the full mark. Your answers must be prece
questions. Marks may be deducted for poor quality presentation.
For Question 2, you may choose to do it using Excel QM or using formula. If you do this qu
show your work.
The number inside each square bracket is the mark for each part.

SECTION 03 GROUP NUMBER:

STUDENT NAME(s) and STUDENT NUMBER(S):
h group should have up to 3 students and you all
ach step. You can also work on your own if you prefer.
course website by 11:59 pm of the due date. Your
ame(s) and your student number(s).

ne Excel file (containing Excel outputs)

ers and Excel outputs).
nswers must be preceded with the assignment

mula. If you do this question using formula, clearly

 QUESTION 1 Topic: Decision Ana

Even though independent gasoline s

gasoline station. Susan’s problem is t
projected annual return (in thousand
Size of the Station Good Market Poor Market Without any information, Susan esti
Large 705 -112
Medium 575 -62 1. Draw a simple decision tree to pre
Small 335 -55
2. Sue has to decide if she should hir
future market. From the past data, th
probability of a negative report given
probability of a positive survey resul

3. Draw a complex decision tree; find

4. Based on the Expected Value of Sa

5. Calculate the efficiency of this sam

 Topic: Decision Analysis (18 marks)

dependent gasoline stations have been having a difficult time, Susan Solomon has been thinking about starti
n. Susan’s problem is to decide how large her station should be. After a careful analysis, Susan developed the
ual return (in thousands of dollars) as in the table on the left.
nformation, Susan estimates that the probability of Good Market will be 0.58.
le decision tree to present this situation and recommend an optimal strategy for this problem. [3]

ecide if she should hire a market research company to conduct a survey at a cost of $50,000 to get additional
From the past data, the probability of a positive report from the market research company given a good mar
a negative report given a poor market is 0.90. Calculate the revised probabilities (keep answers to 3 decimal p
a positive survey result (keep 4 decimal places)? [4]

plex decision tree; find the Expected Value of Sample Information; and recommend an optimal strategy for th

e Expected Value of Sample Information, how much might Susan be willing to pay for the additional informati

e efficiency of this sample information and interpret its meaning. [2]

n thinking about starting her own independent
Susan developed the following table for the

oblem. [3]

,000 to get additional information on the

any given a good market is 0.72 ; the
nswers to 3 decimal places). What is the

optimal strategy for this problem. [7]

e additional information? Why? [2]

Data for Question 2
Mean Unemployment Rate 6.91

Unemployment Rate (%) 4 year moving average 3 year movExponential Smoothing

Year 1 7.5
Year 2 7.6 #N/A
Year 3 7.2 7.50
Year 4 6.8 7.38 7.56
Year 5 6.3 7.28 7.10 7.34
Year 6 6 6.98 6.65 7.02
Year 7 6.1 6.58 6.28 6.59
Year 8 8.3 6.30 6.13 6.23
Year 9 8.1 6.68 7.18 6.15
Year 10 7.5 7.13 7.65 7.44
Year 11 7.3 7.50 7.85 7.84
Year 12 7.1 7.80 7.55 7.63
Year 13 6.9 7.50 7.25 7.43
Year 14 6.9 7.20 7.05 7.23
Year 15 7 7.05 6.95 7.03
Year 16 6.3 6.98 6.95 6.95
Year 17 5.8 6.78 6.63 6.98
Year 18 5.7 6.50 6.23 6.57
Year 19 6.20 5.88 6.11

Source: Statistics Canada, Labor Force Survey

Exponential Smoothing QUESTION 2 Topic: Forecasting Models: Moving Average, Weighted Moving

The unemployment rates in Canada during a 18-year period (2002 - 2019) are sh
1. Find 4-year moving averages and forecast the unemployment rate in Year 19.
Answer: The moving averages are shown in column C and the unemployment rat

2. Find 3-year weighted moving averages and determine the unemployment rate
given a weight of 2 and data value in the second most recent year are given a we
of 1.
Answer: The 3-year moving averages using the assumptions provided are shown
moving averages is 5.88%.

3. Use exponential smoothing with a smoothing constant alpha = 0.6 to develop

for Year 1 is 7.5(%).
Answer: The exponential smoothing using the assumptions provided has been p
through year 19.

4. Report the Mean Absolute Deviation (MAD) for each model in part 1), 2), and
predicting the unemployment rate for Year 19? Please explain.

Note: keep answers to 2 decimal places for parts 1, 2,3. Keep answers to 4 decim
Answer:
ge, Weighted Moving Average, and Exponential Smoothing (12 marks)

d (2002 - 2019) are shown in the table on the left.

ment rate in Year 19. [3]
he unemployment rate for year 19 using 4-year moving averages is 6.2%.

e unemployment rate for Year 19. Assume that the data value in the most recent year is
nt year are given a weight of 1 and the data in the third most recent year are given a weight
[3]
s provided are shown in column D and the unemployment rate for year 19 using 3-year

lpha = 0.6 to develop forecasts for Year 2 through Year 19. Assume that the initial forecast
[3]
provided has been performed in Column F indicating the forecasts developed for year 2

del in part 1), 2), and 3). Based on the MAD criteria, which model would be most accurate in
ain. [3]

ep answers to 4 decimal places for part 4.

Question 1 (iii)

0.58
Good Market

Large 705

361.86 0.42
Poor Market

-112

0.58
Good Market

Medium 575

361.86 307.46 0.42

Poor Market

-62

0.58
Good Market

Small 335

171.2 0.42
Poor Market

-55

Question 1 (ii)
P(Good Market) 0.58
P(Poor Market) 0.42

Positive Report
Prior Conditional Joint
Good Market 0.58 0.72 0.4176
Bad Market 0.42 0.1 0.042
P(Positive report) 0.4596
 705 Size Expected Value
Large 361.86
Medium 307.46
Small 171.2

-112

575

-62

335

-55

Negative Report
Prior Conditional Joint
Good Market 0.58 0.28 0.1624
Bad Market 0.42 0.9 0.378
P(Negative report) 0.5404
Decision: Invest in Large stations
ID PARENT TYPE
1 3T
2 3T
3 10 E
4 6T
5 6T
6 10 E
7 9T
8 9T
9 10 E
10 0D
ROW COL LABEL VALUE PROP
2 9 Good Market 0.58
7 9 Poor Market 0.42
4 5 Large 0.333333
12 9 Good Market 0.58
17 9 Poor Market 0.42
14 5 Medium 0.333333
22 9 Good Market 0.58
27 9 Poor Market 0.42
24 5 Small 0.333333
14 1 Event 4 0 1
 0.5
Good Market

Large 0

0 0 0.5
Event 2

0.5
Good Market

Hire Medium 0

0 0 0 0 0.5
Event 5

0.5
Good Market

Small 0
0
0 0 0.5
Event 8

Don’t Hire

0 0
Good Market
0
0

0
0

Good Market
0
0

0
0

Good Market
0
0

0
0

0
ID PARENT TYPE
1 3T
2 3T
3 10 E
4 6T
5 6T
6 10 E
7 9T
8 9T
9 10 E
10 12 D
11 12 T
12 0D
ROW COL LABEL VALUE PROP
2 13 Event 1 0 0.5
7 13 Event 2 0 0.5
4 9 Decision 1 0 0.333333
12 13 Event 4 0 0.5
17 13 Event 5 0 0.5
14 9 Decision 2 0 0.333333
22 13 Event 7 0 0.5
27 13 Event 8 0 0.5
24 9 Decision 3 0 0.333333
14 5 Decision 1 0 0.5
32 5 Decision 2 0 0.5
23 1 1