This is a Schweser Qbank (38530) - can anyone explain to me how they interpret the TREND variable? ----------------------------- ------------Coefficients Intercept …31.40833 Q1 …−3.77798 Q2 …−2.46310 Q3 …−0.14821 TREND …0.851786 The dependent variable is the level of sales for each quarter, in $ millions, which began with the first quarter of the first year. Q1, Q2, and Q3 are seasonal dummy variables representing each quarter of the year. For the first four observations the dummy variables are as follows: Q1:(1,0,0,0), Q2:(0,1,0,0), Q3:(0,0,1,0). The TREND is a series that begins with one and increases by one each period to end with 24. Using Equation ONE, what is the sales forecast for the second quarter of the next year? A) $56.02 million. B) $49.72 million. C) $46.31 million. D) $51.09 million.
I think this is a qualitative dummy variable which means 1 if applicable and 0 otherwise.
sorry the numbers didn’t come out - but this is what scwheser says The estimate for the second quarter of the following year would be (in millions): 31.4083 + (−2.4631) + (24 + 2) × 0.851786 = 51.091666.
You have 24 quarters of observations and this question is asking you to forecast two quarters out. For the trend you do 24 (because thats how many quarters you initially observed) plus 2. I didn’t understand this at first until I looked at the answer.