Time Series Analysis-H-1 PDF

TIME SERIES
7 ANALYSIS
INTRODUCTION :
Time Series refers to such a series in which one variable is time. In other words, a
time series is an arrangement of statistical data in a chronological order, i.e. in
accordance with its time of occurrence. It reflects the dynamic pace of movements of a
phenomenon over a period of time, e.g. the figure of national income, production or cost
or prices spread over a period of time. Most of the series relating to Economics,
Business and Commerce are all time series spread over a period of time.
Time series analysis is done primarily for the purpose of making forecasts for
future and also for the purpose of evaluating past performances. An economist or a
businessman is interested in estimating the figures of national income, population,
prices and wages etc. in future by analyzing the past behavior of the variable under
study. The analysis of time series plays an important role in the study of all economic,
business and natural and social sciences. Thus, we can conclude that the analysis of
time series is helpful in studying and phenomenon whose values are or can be arranged
chronologically over successive period of time.
UTILITY (IMPORTANCE) OF TIME SERIES :
The following points indicate the utility of time series analysis :

Analysis – It helps in the analysis of past behaviour of a variable. Analysis of past
data discloses the effect of various factors on the variable under study. With the help
of such analysis the future behavior of the variable under study can be predicted.
Forecasting – It helps in forecasting. The analysis of past conditions is the basis of

forecasting the future behavior of the variable under study. This helps in making
future plans of action. Various five-year plans of our country are based on the
analysis of past data.
Evaluation – It helps in the evaluation of current achievements. The review and

evaluation of progress made on the basis of a plan are done on the basis of time
series data. The progress made on the basis of a plan is done on the basis of time
series data. The progress of plans is judged by the yearly rates of growth in GNP
(Gross National Product).
Comparison – It helps in making comparative studies. Once the data is arranged

chronologically, the comparison between one time period and another is facilitated.
It provides a scientific basis for making comparisons by studying and isolating the
effects of various components of a time series.
It gives approximate indicators.
SYNERGY INSTITUTE OF MANAGEMENT & COMMERCE

294, 3rd Floor,Satya niketan(opp.Venky)above QD’s Ph:65643333,9899620899
Mr. Deepak Sharma
M.Sc.(Maths)
SYNERGY 7.2 ANALYSIS OF TIME SERIES [B.COM(P)]
COMPONENTS OF A TIME SERIES :
There are four types of components of a time series, which are as follows :
Secular Trend
Seasonal Variations
Cyclical Variations
Irregular Variations.
SECULAR TREND :
Secular Trend is the general tendency of the time series data to increase or
decrease or stagnate during a long period of time. An upward tendency is usually
observed in time series relating to population, production and sales, prices, income
money in circulation while a downward tendency is noticed in data of birth’s and
death’s and epidemics as a result of advancement in medical sciences, illiteracy, etc.
Thus, trend is either upward or downward. It should be clearly understood that trend is
the general, smooth, long-term average tendency. It is not necessary that the increase
or decrease should be in the same direction throughout the given period. With the help
of a long-term trend, it is possible to determine and present the direction of change.
Examples of secular trend:
(1) Long-term changes in productivity
(2) Increase in the rate of capital formation
(3) Growth of population
(4) Technological innovations
SEASONAL VARIATIONS :
Seasonal variations refer to such movements in a time series which are due to
forces which are rhythmic in nature and which repeat themselves periodically in every
season. These variations repeat themselves in less than one-year time. Seasonal
variations are usually measured in an interval. The seasonal variation may be
attributed to those resulting from natural forces and social customs and traditions.
Seasonal variations are the results of such factors which uniformly and regularly rise
and fall in the magnitude.
Examples of variations:
variations:
(i) Going down of the prices of grains during harvest season.
(ii) Effect of a festival on the sale of a departmental store.
(iii) Agriculture production.
(iv) Production of construction material like bricks, sometimes stops during
rainy season.
(v) Sale of construction material going down during rainy season.

Mr. Deepak Sharma
M.Sc.(Maths)
CYCLIC VARIATIONS :
Cyclic variations are the oscillatory movements in a time series with period of
oscillation greater than one year. These variations in a time series are due to ups and
downs recurring after a period greater than one year. These are not necessarily
uniformly periodic, i.e. they may or may not follow exactly similar patterns after equal
intervals of time. A business cycle consists of the recurrence of the up and down
movement of business activity. It is a four-phase cycle namely.
1. Prosperity 2. Decline 3. Depression 4. Recovery
Each phase changes gradually into the following phase. The following diagram
illustrates a business cycle.
IRREGULAR VARIATIONS :
Random or irregular variations do not exhibit any definite pattern and there is
no regular period or time of their occurrence. These are accidental changes which are
purely random, unforeseen and unpredictable. They turn the series first in one way and
then in the other way purely by chance with no regularity of occurrence for example
earthquakes, wars, floods, etc. Normally they are short-term variations but sometimes
their effect is so intense that they may give rise to new cyclical or other movements.
Examples of irregular variations such as strikes, lockouts, floods, wars, famines, storms,
earthquakes, etc.
MATHEMATICAL MODELS FOR TIME SERIES :
The following are the two most important models commonly used for the
decomposition of a time series into its components.
Additive model.:
This model assumes that the observed value is the sum of four components of time
series, i.e.,
Y = T + S + C + 1, where Y = Original data, T = Trend value, S = Seasonal component,
C = Cyclical component, I = Irregular component.
Thus, additive model for decomposition of time series assumes that all the four
components of the time series operate independently of one another. It also assumes
that the behaviour of components is of an additive character. It is to be noted that only

Mr. Deepak Sharma
M.Sc.(Maths)
absolute values are added or deducted from the trend value to arrive at the observed
value.
Multiplicative model.:
This model assumes that the observed value is obtained by multiplying the trend (T) by
the rates of three other components as under, i.e.
Y = T × S × C × I, where Y = Original data, T = Trend values, S = Seasonal components,
C = Cyclical component, I = Irregular component.
The multiplicative model assumes that the components although due to different
causes are not necessarily independent and they can affect one another. It also assumes
that the behaviour of components is of a multiplicative character. It may be noted that
except the value of trend all the other values on the right hand side are rates or index
numbers.
Most of the time series relating to economic and business phenomena conform to the
multiplication model. In practice, additive model is rarely used.
MEASUREMENT OF SECULAR TREND (OR TREND):
Following are the methods which are used to determine the trend.
Freehand or Graphic method :
This is the easiest and simplest method of measuring trend. In this method, given data
must be plotted on the graph, taking time on the horizontal axis and values on the
vertical axis. Draw a smooth curve which will show the direction of the trend.
Example 1:
Fit a trend line to the following data by graphical method.

Mr. Deepak Sharma
M.Sc.(Maths)
Merits:
1. It is the simplest and easiest method. It saves time and labour.

2. It can be used to describe all kinds of trends.
3. This can be used widely in application.
4. It helps to understand the character of time series and to select appropriate trend.
Demerits:
1. It is highly subjective. Different trend curves will be obtained by different persons for
the same set of data.
2. It is dangerous to use freehand trend for forecasting purposes.
3. It does not enable us to measure trend in precise quantitative terms.
Method of Semi-
Semi-Averages :
In this method, the given data is divided into two parts, preferably with the same
number of years. For example, if we are given data from 1981 to 1998 i.e., over a period
of 18 years, the two equal parts will be first nine years, i.e., 1981 to 1989 and from
1990 to 1998. In case of odd number of years like 5,7,9,11 etc, two equal parts can be
made simply by omitting the middle year. For example, if the data are given for 7 years
from 1991 to 1997, the two equal parts would be from 1991 to 1993 and from 1995 to
1997, the middle year 1994 will be omitted. After the data have been divided into two
parts, an average of each parts is obtained. Thus we get two points. Each point is
plotted at the mid-point of the class interval covered by respective part and then the
two points are joined by a straight line which gives us the required trend line. The line
can be extended downwards and upwards to get intermediate values or to predict
future values.
Example 2: The sale of a commodity in tonnes varied from January 2002 to December
2002 in the following manner:
280 300 280 280 270 240
230 230 220 200 210 200
Fit a trend line by the method of semi-averages.
Solution : CALCULATION OF TREND VALUES BY THE METHOD OF SEMI-

SEMI-AVERAGES
Month Sales in tonnes Month Sales in tonnes
January 280 July 230
February 300 August 230
March 280 1,650 (Total) of first September 220 1,290 (Total)
six months of last six
months
April 280 October 200
May 270 November 210
June 240 December 200
Mr. Deepak Sharma
M.Sc.(Maths)
Average of the first half = 1650 = 275 tonnes.

6
Average of the second half = 1290 = 215 tonnes.

6
These two figures, namely, 275 and 215, shall be plotted at the middle of their
respective periods, i.e., at the middle of March-April and that of September-October,
2002. By joining these two points we get a trend line which describes the given data.
Merits:
1. It is simple and easy to calculate
2. By this method every one getting same trend line.
3. Since the line can be extended in both ways, we can find the later and earlier
estimates.
Demerits:
1. This method assumes the presence of linear trend to the values of time series which
may not exist.
2. The trend values and the predicted values obtained by this method are not very
reliable.
Method of Moving
Moving Averages :
In this method, average value of a number of years is secured and this average is taken
as the normal or trend value for the unit of time falling at the middle of the period
covered in the calculation of average. Then excluding the first value of the series and
including the (N+1)th item, we have the next series of N values which are to be
averaged for the trend value. This process is repeated at every step comprising of
exclusion of value from the top of the previous series and including next figure in the
series. While applying this method, it is necessary to select a period for moving average
such as 3 yearly, 5 yearly, 8 yearly etc. This period should be selected with care. The
period should be such which irons out fluctuations. The formula for 5 yearly moving
a+b+c + d+ e b+c + d+ e+ f c +d+ e+ f + g
average will be , , and so on.
5 5 5
The main limitation of this method is that the values of some periods in the beginning
and at the end of the data are left undetermined. Moreover, this method cannot be used
for the purpose of forecasting.

Mr. Deepak Sharma
M.Sc.(Maths)
Steps for calculating odd number of years :
1. Find the value of three years total, place the value against the second year.
2. Leave the first value and add the next three years value (i.e. 2nd, 3rd and 4th year
value) and put it against 3rd year.
3. Continue this process until the last year’s value taken.
4. Each total is divided by three and placed in the next column.
Example 4 : Calculate the three yearly average of the following data.
Solution:
Even Period of Moving Averages:
When the moving period is even, the middle period of each set of values lies
between the two time points. So we must center the moving averages.
The steps are:

are:
1. Find the total for first 4 years and place it against the middle of the 2nd and 3rd year
in the third column.
2. Leave the first year value, and find the total of next four-year and place it between
the 3rd and 4th year.
3. Continue this process until the last value is taken.
4. Next, compute the total of the first two four year totals and place it against the 3rd
year in the fourth column.
5. Leave the first four years total and find the total of the next two four years’ totals and
place it against the fourth year.
6. This process is continued till the last two four years’ total is taken into account.

Mr. Deepak Sharma
M.Sc.(Maths)
7. Divide this total by 8 (Since it is the total of 8 years) and put it in the fifth column.
Example 5 : The production of Tea in India is given as follows. Calculate the Four-yearly
moving averages
Solution:
Merits:
1. The method is simple to understand and easy to adopt as compared to other

methods.
2. It is very flexible in the sense that the addition of a few more figures to the data, the
entire calculations are not changed. We only get some more trend values.
3. Regular cyclical variations can be completely eliminated by a period of moving
average equal to the period of cycles.
4. It is particularly effective if the trend of a series is very irregular.
Demerits:

Mr. Deepak Sharma
M.Sc.(Maths)
1. It cannot be used for forecasting or predicting future trend, which is the main
objective of trend analysis.
2. The choice of the period of moving average is sometimes subjective.
3. Moving averages are generally affected by extreme values of items.
4. It cannot eliminate irregular variations completely.
Method of
of Least Squares :
This method is widely used. It plays an important role in finding the trend values of
economic and business time series. It helps for forecasting and predicting the future
values. The trend line by this method is called the line of best fit. The equation of the
bx, where the constants a and b are to be estimated so as to
trend line is y = a + bx
minimize the sum of the squares of the difference between the given values of y and the
estimate values of y by using the equation. The constants can be obtained by solving
two normal equations.
∑y = na + b∑x ………. (1)

∑xy = a∑x + b∑x2 ……… (2)
Here x represent time point and y are observed values. ‘ n’ is the number of pair- values.
Q.1 Below are given the figures of production (in ‘000 qtl. ) of a sugar factory:
Year : 1996 1997 1998 1999 2000 2001 2002
Production (in ‘000 qtl.) : 80 90 92 83 94 99 92
Fit a straight line trend to these figures.
Plot these figures on a graph and show the trend line.
Estimate the production in 2005
[Ans : (i) Yc = 90+2x (iii) Yc = 102 (in ‘000 qtl. )]
Q.2 The number of units of a product exported during 1990-95 is given below.
Fit straight line trend by the method of least squares. Estimate the export for
1996.
Year : 1990 1991 1992 1993 1994 1995
No. of Units (in '000): 12 13 14 15 22 26
[Ans. Y = 1 7 + 1.4 X, Estimated exports = 26.80 or 26,800 units]
Q.3 Fit a-straight line trend to the following data by Least Squares method
taking 1998 as the year of origin and estimate exports for the year 2005:
Years : 1996 1997 1998 1999 2000 2001 2002

Exports( in tonnes): 47 50 53 65 62 64 72
[Ans. Y= 55 + 4X, Y2005 = 83
83 tonnes]

Mr. Deepak Sharma
M.Sc.(Maths)
SEASONALVARIATIONS:
Seasonal Variations are fluctuations within a year during the season. The factors that
cause seasonal variation are:
i) Climate and weather condition.
ii) Customs and traditional habits.
For example the sale of ice-creams increase in summer, the umbrella sales
increase in rainy season, sales of woolen clothes increase in winter season and
agricultural production depends upon the monsoon etc.,
Secondly in marriage season the price of gold will increase, sale of crackers and
new clothes increase in festival times.
So seasonal variations are of great importance to businessmen, producers and
sellers for planning the future. The main objective of the measurement of seasonal
variations is to study their effect and isolate them from the trend.
METHOD OF MEASUREMENT OF SEASONAL INDICES:
1. Method of Simple averages :
This method is used when the time series variables consists of only seasonal and
random components. The effect of taking average of data corresponding to the same
period (e.g. first quarter of each year) is to eliminate the effect of random variable and
thus leaving only seasonal component. These averages are then used to compute
seasonal indices
Q.4 Calculate the Seasonal Index from the following data using the average
method:
Year 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
1974 72 68 80 70
1975 76 70 82 74
1976 74 66 84 80
1977 76 74 84 78
1978 78 74 86 83
2. Ratio to Moving Average Method :
This method assumes the presence of all the components in the time series data,
i.e., Y = TCSR
The moving average of Y values with period equal to the period of seasonal variations,
will consist of trend, cyclical and random components, i.e., M = TCR'
Y TCSR
Ratio to moving average is = ,
= SR ,,
M TCR
Finally, we apply method of simple averages to eliminate random components.

Mr. Deepak Sharma
M.Sc.(Maths)
Q.5 Calculate seasonal indices by the ratio to moving average method from the
following data:
Quarters
Years
I II III IV
2002 68 62 61 63
2003 65 58 66 61
2004 68 63 63 67
3. Ratio of Trend Method:

Method:
This method assumes the presence of trend, seasonal and random components, i.e., Y =
TSR.
Here, we first compute trend values by the method of least squares and then find ratio
to trend i.e. X/T values.
These values consist of seasonal and random components. Random component is then
eliminated by the method of simple averages.
Q.6 Find seasonal variations by Ratio to Trend method from the data given
below:
YEAR 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
1987 30 40 36 34
1988 34 52 50 44
1989 40 58 54 48
1990 54 76 68 62
1991 80 92 86 82
[Ans.: 92, 117.4, 102.1, 88.4]
DESEASONALISARION OF DATA:
The deseasonalisation of data implies the removal of the effect of seasonal variations.
Deseasonalisation is done under the assumption that the pattern of seasonal variations
remain the same over various years.
Y
The deseasonalised Value = × 100
Seasonal Index
Illustration :
Deseasonalise the following sales data of various quarters :
Quarters I II III IV
Sales (‘000 Rs.) 33.5 48.2 45.4 62.8
Seasonal Index 70 105 95 130
Mr. Deepak Sharma
M.Sc.(Maths)
Solution:
Solution:
Quarters I II III IV
Deseasonalised (33.5/70)x100 (48.2/105)x100 (45.4/95)x100 (62.8/130)x100
Illustration :
The Seasonal indices of the sales of a popular brand of colour television by a company
in Delhi are given below:
Quarters: I II III IV
Seasonal Indices: 125 95 80 100
If the total sales of the first quarter of the year 2000 were Rs. 9,00,000, estimate the
worth of sales in the remaining quarters.
Solution:
The worth of sales in 2nd quarter =(9,00,000/125)x 95 =Rs. 6,84,000
The worth of sales in 3rd quarter = (9,00,000/125)x 80 =Rs. 5,76,000
The worth of sales in 4th quarter = (9,00,000/125)x 100 =Rs. 7,20,000

Mr. Deepak Sharma
M.Sc.(Maths)
IT’S YOUR TURN
Q.7 From the following data, estimate the trend values by taking 4 yearly
moving averages:
Year: 1993 1994 1995 1996 1997 1998
Sales (Rs. lakh): 200 120 280 240 160 320
Year: 1999 2000 2001 2002 2003
Sales (Rs. lakh): 360 400 320 360 360
[DU
DU B.Com. (H), 2007 (R)][Ans.: -, -, 205, 225, 260, 290, 330,
330, 355, 360, -, -]
Q.8 Fit a straight line trend to the following data by least squares method
taking 1999 as the year of origin and estimate exports for the year 2005:
Year: 1996 1997 1998 1999 2000 2001 2002
Exports (in tonnes): 47 50 53 65 62 64 72
[DU B.A. Eco (H), 2008][Ans.: Y = 59 + 4X, Y2005 = 83 tonnes]
tonnes]
Q.9 Fit a straight line trend to the following series. Estimate the value of output
for the year 2007:
Year Production of Steel (in million tonnes)
1997 60
1998 72
1999 75
2000 65
2001 80
2002 85
2003 95
[DU B.A. Eco (H), 2006][Ans.: Y = 76 + (34/7)X; 110 million tonnes]
Q.10 The linear trend of sales of a company is Rs. 6,50,000 in 1995 and it rises by
Rs. 16,500 per year.
(i) Write down the trend equation.
(ii) If the company knows that its sales in 1998 will be 10% below the forecasted trend
sales, find its expected sales in 1998.
[DU, B.A. (Eco Hons), 1998]
[Ans.: (i) Y=6,50,000+16,500X
Y=6,50,000+16,500X (Origin:1995); (ii) Rs 6,29,550]
Q.11 Estimate the quadratic regression equation for the data given ahead and
use it to estimate the value of sales in 1991:
Year: 1980 1982 1984 1986 1988
Sales (Rs.): 120 110 130 150 180
[DU B.A. Eco (H), 2005]
Mr. Deepak Sharma
M.Sc.(Maths)
Q.12 The prices of a commodity during 2001 – 2006 are given below. Fit a
parabola Y = a + bX + cX2 to these data. Estimate the price for the year
2007:
Year Price (Rs.)
2001 100
2002 107
2003 128
2004 140
2005 181
2006 192
(R)][Ans.: Y = 136.13 + 9.91X + 0.45X2 , Rs. 227.55]
[DU B.Com. (H), 2006 (R)][Ans.:
Q.13 Fit a second degree parabola to the following data:

X: 1 2 3 4 5
Y: 1090 1220 1390 1625 1915
[DU B.Com. (H), 2008][Ans.:
2008][Ans.: Y = 1024 + 40.5X + 27.5X2]
Q.14 Find a non – linear trend equation from the following three normal
equations obtained from 1994 and estimate the value of 1997.
10 = 5a + 10b + 30c, 26 = 10a + 30b + 100c, 86 = 30a + 100b + 354c.
[B.Com. (H) DU, 1996][Ans.: 38/35 + X/35+ X2/7; 2.457]
Q.15 The sales of a company in thousands of rupees for the year 1980 through
1986 are given below:
Year: 1980 1981 1982 1983 1984 1995 1986
Sales : 32 47 65 92 132 190 275
Estimate the sales figures for the year 1987 using an equation of the form
Y = abX, where X = years and Y = sales.
[B.Com (H), DU 1995][Ans.: log Y = 1.9704 + 0.154X; Rs 3,85,900]
Q.16 Fit a trend function Y = A.Bx to the following data:

X Y
1 2.08
2 6.74
3 23.1
4 45.27
5 138
[
[DU B.Com. (H), 2005] Ans. : Y = 0.8312(2.8)X ]
Q.17 The sale of a company in thousand of rupees for the year 2000 through
2006 are given below:
Year: 2000 2001 2002 2003 2004 2005 2006
Sales (In Rs ‘000): 32 47 65 92 132 190 275

Mr. Deepak Sharma
M.Sc.(Maths)
Fit the exponential trend equation y = abx to the given data and estimate the sales for
the year 2007. [DU B.Com. (H), 2007 (Regular)]
[Ans.: Y = 93.49(1.427)X ...... Origin: 2003; Sales2007 = 380]
Q.18 Below are the figures of production (in ‘000 tons) of a sugar factory:
Years: 1999 2000 2001 2002 2003 2004 2005
Production: 77 88 94 85 91 98 90
i) Fit a straight line trend by the method of least squares and show the trend values.
ii) What is the monthly increase in production?
iii) Eliminate the trend by both using additive and multiplicative models.
[DU B.Com. (H), 2007 (Corr.)]
[Ans.: (i) Y = 89 + 2X (Trend Values (in ‘000 tons) = 83, 85, 87, 89, 91, 93, 95), (ii)
500/3 tons, (iii) Trend eliminated values – Using m/ model: 0.9277, 1.035, 1.08, 0.955, 1,
1.053, 0.947; Using add./ model: -6, 3, 7, -4, 0, 5, -5]
Q.19 Eliminate trend by moving average method and comment.

Year 1st Quarter 2ns Quarter 3rd Quarter 4th Quarter
1995 40 35 38 40
1996 42 37 39 38
1997 41 35 38 42
[DU B.Com. (H), 1998][Ans.: M.A.V.'s and Trend Eliminated Values (T.E.V.'s) (Assuming
multiplicative model) are:
Year 1995 1996 1997
Quarter III IV I II III IV I II
M.A.V. 38.5 39.0 39.375 39.25 38.875 38.5 38.125 38.5
T.E.V. 98.70 102.56 106.67 94.27 100.32 98.70 107.54 90.91
Q.20 Given the following trend equation:

Yc = 240 + 3.8X; Origin 1998, X unit = 1 year,
Y = annual production of cement.
Shift the origin to 2000 – 2001.
[Ans.: Yc = 249.5 + 3.8X]
Q.21 The following trend equation is given:

Yc = 20 + 0.8X; Origin = 2000; X unit = 1 year;
Y = annual production in million tonnes
Shift the origin to Jan. 1, 2001.
[Ans.: Yc = 20.4 + 0.8X]
0.8X]
Q.22 For each of the following, derive the monthly trend equation (shift origin
also to a month):
(i) Yt = 960 + 72X Origin: 1998
X unit: 1 year
Y unit: Annual Sales of coffee in Rs.
Mr. Deepak Sharma
M.Sc.(Maths)
(ii) Yt = 169.58 + 78X Origin: 1995

X unit: 1 year
Y unit: Average monthly production.
(iii) Yt = 2760 + 212X Origin: 1997
X unit: ½ year
Y unit: Annual earnings in Rs.
(iv) Yt = 72 + 12X Origin: 1995
X unit: ½ year
Y unit: Average monthly production.
[DU B.Com. (H), 2006 (Regular)]
(Regular)]
[Ans.: (i) Yt=80.25+0.5X (July, 1998; 1 month, Monthly Sales of coffee in Rs.;
(ii) Yt=172.83+6.5X (July, 1995; 1 month, Monthly Production;
(iii) Yt=231.47+2.94X (July, 1997; 1 month, Monthly earnings in Rs.;
(iv) Yt=73+2X (July, 1995; 1 month,
month, Monthly Production]
Q.23 You are given the following trend equation by the method of least squares
of a company selling readymade garments.
Y = 480 + 36X (Origin = 1988)
X = Unit of one year, Y = number of units sold per year.
a) Convert the above trend equation in to monthly trend equation.
b) Estimate the sale for the month of Oct. 1994.
[B.Com. (H), DU 1994][Ans.: Y = 40 + 0.25X; 58.875 units]
Q.24 The trend equation for the yearly sales of a commodity with 1st July, 1991
as origin is:
Yc = 96 + 28.8X + 4X2 (where X-unit = 1 year)
(i) Determine monthly trend equation with January 1992 as origin.
(ii) Compute trend values for August 1991 and March 1992.
[B.Com (H), DU 2002][Ans.: (i) Y = 9.39 + 0.23X + 0.0023X2; (ii) 8.31, 9.86]
Q.25 Convert the following into annual trend equation.

YC = 350 + 3X, Origin = II – III Quarter 1986.
X = 1 Quarter, Y = Quarterly Production.
[B.Com. (H) DU, 1988][Ans.: 1400 + 48X]
Q.26 The following is a monthly trend equation:

Ye = 20 + 2X [Origin: Jan, 1992, X unit = One month,
Y unit = Monthly sales (in '000 Rupees)]
Convert it into an annual trend equation.
[DU B.Com (H), 1998][Ans.: Ye=372+288X (Origin: July, 1992,
X unit = One year, Y unit = Yearly total sales (in '000 Rupees)]
Q.27 Convert the following equation into annual trend equation:

Yt = 700 + 6X (origin I-II quarter 2004, X unit-quarter,
Y unit-quarterly output)
Mr. Deepak Sharma
M.Sc.(Maths)
[DU B.Com. (H), 2006 (Corr.)]

[Ans.: Yt = 2824 + 96X (July, 2004, 1 year, Annual output)]
Q.28 Given below is a trend equation:

Yc = 372 + 288X (Origin 2006, X unit = 1 year, Y unit = Annual sales)
Convert the above equation:
(i) To monthly trend equation with January, 2007 as origin and estimate sales for
March, 2007.
(ii) To quarterly trend equation with first quarter, 2007 as origin and estimate sales
for third quarter of 2007.
[DU B.Com. (H), 2008][Ans.: i) Yc = 187 + 24X, Sales = 235 units,
ii) Yc = 138 + 18X, Sales = 174 units]
Q.29 Find the seasonal variation by the ratio to trend method from the data
given below:
Quarter
Years
I II III IV
2001 60 80 72 68
2002 68 104 100 88
2003 80 116 108 96
2004 108 152 136 124
2005 160 184 172 164
[DU B.Com. (H), 2006 (Corr.)][Ans.: 92.05, 117.36, 102.13, 88.46]
Q.30 Calculate seasonal indices by the ratio to moving average method from the
following data:
Quarters
Years
I II III IV
2002 68 62 61 63
2003 65 58 66 61
2004 68 63 63 67
[DU B.Com. (H), 2007][Ans.: 105.30, 95.20, 100.95, 98.55]
Q.31 Calculate seasonal indices from the following data:

Ratio to Moving Averages (%)
Year
Quarter I Quarter II Quarter III Quarter IV
1987 --- --- 85.21 90.25
1988 128.12 91.71 96.10 103.90
1989 105.26 100.35 78.13 97.88
1990 105.26 103.50 --- ---
[DU B.Com. (H), 1991][Ans.: 114.25, 99.72, 87.53, 98.51]

Mr. Deepak Sharma
M.Sc.(Maths)
Q.4 (a) Calculate seasonal indices by the ratio to moving average method from the
following data:
Quarters
Years
I II III IV
2002 68 62 61 63
2003 65 58 66 61
2004 68 63 63 67
[DU B.Com. (H), 2007 (Corr.)]
[Ans.: - , -, 96.7, 101.3, 104.2, 92.4, 104.9, 95.5, 106.1, 97.7, -, -]
Q.32 Calculate Seasonal Index by Link relative method.

Link Relatives
Quarter
1991 1992 1993 1994 1995
I --- 80 88 80 83
II 120 117 129 125 117
III 133 113 111 115 120
IV 83 89 93 96 79
[B.Com. (H), DU 1996] [Ans.: 82.47, 99.30, 116.74, 101.52]
Q.33 The trend equation for quarterly sales of a firm is estimated to be as

follows:
Y = 20 + 2X, where Y is sales per quarter in millions of rupees, the unit of X is one
quarter and the origin is the middle of the first quarter (Jan – March) of 1999.
The seasonal indices of sales for the four quarters are as follows:
Quarter: I II III IV
Find the estimated sales for each quarter of 2004.
[DU B.Com. (H), 2004][Ans.: 72, 65.1, 54.4, 59.4]
Q.34 The trend equation for quarterly sales of a firm is estimated to be as

follows:
Y = 20 + 2X,
where Y is sales per quarter in millions of rupees, the unit of X is one quarter and the
origin is the middle of the first quarter (Jan – March) of 1999. The seasonal indices of
sales for the four quarters are as follows:
Find the estimated sales for each quarter of 2000.
[DU B.Com.
B.Com. (H), 2004]
2004]
Q.35 On the basis of quarterly sales (in Rs. Lakhs) of a certain commodity for the
years 2001-2005, the following calculations were made:
Trend Y = 25 + 0.6t with origin at 1st quarter of 2001
Mr. Deepak Sharma
M.Sc.(Maths)
Where t = time unit (one quarter)

Y = quarterly sales (Rs. Lakhs)
Seasonal Variations
Seasonal Index: 90 95 110 105
Estimate the quarterly sales for the year 2002 (Use multiplicative model).
[DU B.Com. (H), 2007
2007][Ans.: 24.66, 26.60, 31.46, 30.66]
Q.36 The sale of a reputed organization rose from Rs. 1,26,000 in the month of
August 1993 to Rs. 1,38,000 in the month of September 1993. The seasonal
indices for the months 105 and 140. The General Manager was not at all
satisfied with rise of the sales in the month of September 1993 by Rs.
12,000. He expected much more because of seasonal index for the month.
What was his expectations of sales for the month of September 1993?
[DU B.Com.
B.Com. (H), 1994][Ans.: Rs 1,68,000]
Q.37 From the given ratios of observed trend values (%), calculate seasonal
indices. If sales for 2001 are expected to be Rs. 2,000 lakhs, what are the
likely sales for individual quarters?
Quarters
Years
I II III IV
1997 80 95 80 110
1998 101 104 90 110
1999 100 95 90 100
2000 115 110 100 120
[DU B.Com. (H), 2008]
[Ans.: Rs. 495, Rs. 505, Rs. 450 & Rs. 550 lakhs respectively]
Q.38 The seasonal indices of the sales of a popular brand of C.T.V. by a company
in 1986 are given below:
Quarter: Q1 Q2 Q3 Q4
Seasonal Index: 130 90 75 105
If the total sales for the first quarter amounted to Rs. 5,85,000. Estimate the worth of
the T.V. of this brand to be kept in store by the company to meet the demand in the
other quarters. [B.Com. (H) DU, 1987][Ans.: 4,05,000, 3,37,500, 4,72,500]
Q.39 The Quarterly seasonal indices of the series of a popular brand of colour
television of accompany, in Delhi, are given below:
Quarter I II III IV
Seasonal Index 130 90 75 105
It the total sales for the first quarter of 1997 is Rs. 6,50,000, estimate the worth of
televisions to be kept in store to meet the demand in other quarters. Assume that there
is no trend.[DU
[DU B.A. (Eco Hons), 1997][Ans.: Rs 4,50,000; Rs 3,75,000 & Rs 5,25,000]

Mr. Deepak Sharma
M.Sc.(Maths)
Q.40 The seasonal indices of sales of a firm are as under:

Month Index Month Index
January 106 July 93
February 105 August 89
March 101 September 92
April 104 October 102
May 98 November 106
June 96 December 108
If the firm is expecting total sales of Rs. 42,00,000 during 1986, estimate the sales for
the individual months of 1986. [B.Com. (H) DU, 1986]
[Ans.: 3.71, 3.675, 3.535, 3.64, 3.43, 3.36, 3.255, 3.115, 3.22, 3.57, 3.71, 3.78 (lakhs)]
Q.41 Fill in the blanks:

(i) An overall rise or fall in time series is called …………………………
[DU B.Com. (P), 2005][Ans.: Trend]
(ii) A polynomial of the form Y = a + bx + cx is called ………………….
2
[DU B.Com. (H), 2006

2006][Ans.: Second degree parabola]
(iii) For the annual data …………………… component of time series is missing.
[DU B.Com.
B.Com. (H), 2007][Ans.: Seasonal]
(iv) If the growth rate is constant, the trend is ……………………….
[DU B.Com. (H), 2007][Ans.:
2007][Ans.: Linear]
Q.42 Explain the meaning and objectives of time series analysis.

[DU B.Com. (P), 2005] [DU B.Com (H) 1997]
Ans.: See page no. 6.1
6.1
Q.43 What are the components of a time series? Give an example of each
component. [DU B.Com. (H), 2006 , 2007 , 2008]
Ans.: page no. 7.2/.3
7.2/.3
Q.44 With which components of a time series would you mainly associate each
of the following? Why?
(i) A fire in a factory delaying production for three weeks.
(ii) An era of prosperity.
(iii) Sales of a textile firm during Deepawali
(iv) A need for increased wheat production due to constant increase in population.
(v) Recession.
(vi) The increase in day temperature from winter to summer.
[D.U., B.Com. (P), 2001][Ans.: (i) Irregular, (ii) Cyclical, (iii)
Seasonal, (iv) Long–
Long–term trend, (v) Cyclical, (vi)Seasonal]
Q.45 With which components of a time series would you mainly associate each
of the following? Why?
(i) A strike in a factory delaying production for 10 days.
(ii) A decline in ice – cream sales during November to March.
(iii) The increase in day temperature from winter to summer.
Mr. Deepak Sharma
M.Sc.(Maths)
(iv) Diwali sales in a departmental store.

(v) Fall in death rate due to advances in science.
(vi) Rainfall in Delhi in July 2002.
(vii) Increase in money in circulation for the last 10 years.
(viii) Rainfall in Delhi that occurred for a week in December 2001.
(ix) Inflation.
(x) An increase in employment during harvest time.
[Ans.: (i) Irregular, (ii) Seasonal, (iii) Cyclical, (iv) Seasonal, (v) Long
Long--term
trend, (vi) Seasonal, (vii) Trend, (viii) Irregular, (ix) Cyclical, (x) Seasonal]
Q.46 State giving reasons whether the statement, “Changes in production caused
due to flood are called seasonal variations”, is true or false:
[DU B.Com. (P), 2002]
Ans.: False, these are caused due to irregular variations.
Q.47 Write short notes on “Moving Average Method” [DU B.Com. (P), 2002]
Ans.: see page no. 7.6
Q.48 Distinguish between additive model and multiplicative model in the
analysis of Time Series. [B. Com. (H), DU 1991, 1983, 2007]
Ans.: See page no.7.3
Q.49 How would you de-seasonalize time series data?[DU
[DU B.Com. (H), 2006 ]
Ans.: Elimination of the seasonal effects from the given values is termed as de-
seasonalization of the data. It helps us to adjust the given time series for seasonal
variations, thus leaving us with trend component, cyclical and irregular movements.
Assuming multiplicative model of the time series, the de-seasonalized (seasonality
eliminated) values are obtained on dividing the given values by the corresponding
indices of seasonal variations.
Y TCSI
Thus, de-seasonalized Data = = = TCI
S S
But, in case of absolute seasonal variations (additive model of time series), the de-
seasonalized values are obtained on subtracting the seasonal variations form the given
values.
Thus, de-seasonalized Data = Y – S = (T + S + C + I) –S = T + C + I
De-seasonalization of data helps businessmen and management executives for planning
future production programmes, for forecasting and for managerial control. It also helps
in proper interpretation of the data. For example, if the values are not adjusted for
seasonality, then seasonal upswings (or downswings) may be misinterpreted as
periods of boom and prosperity (or depression) in business.
Q.50 Distinguish between ‘Ratio to trend’ and ‘Ratio to moving average method’.
[DU B.Com. (H), 1994, 1996, 2008]
Ans.: see page no:7.9


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TIME SERIES

UTILITY (IMPORTANCE) OF TIME SERIES :

The following points indicate the utility of time series analysis :

Forecasting – It helps in forecasting. The analysis of past conditions is the basis of

Evaluation – It helps in the evaluation of current achievements. The review and

Comparison – It helps in making comparative studies. Once the data is arranged

SYNERGY INSTITUTE OF MANAGEMENT & COMMERCE

COMPONENTS OF A TIME SERIES :

SYNERGY INSTITUTE OF MANAGEMENT & COMMERCE

1. Prosperity 2. Decline 3. Depression 4. Recovery

MATHEMATICAL MODELS FOR TIME SERIES :

SYNERGY INSTITUTE OF MANAGEMENT & COMMERCE

MEASUREMENT OF SECULAR TREND (OR TREND):

Freehand or Graphic method :

SYNERGY INSTITUTE OF MANAGEMENT & COMMERCE

1. It is the simplest and easiest method. It saves time and labour.

Solution : CALCULATION OF TREND VALUES BY THE METHOD OF SEMI-

Average of the first half = 1650 = 275 tonnes.

Average of the second half = 1290 = 215 tonnes.

SYNERGY INSTITUTE OF MANAGEMENT & COMMERCE

Steps for calculating odd number of years :

Example 4 : Calculate the three yearly average of the following data.

Even Period of Moving Averages:

The steps are:

SYNERGY INSTITUTE OF MANAGEMENT & COMMERCE

1. The method is simple to understand and easy to adopt as compared to other

SYNERGY INSTITUTE OF MANAGEMENT & COMMERCE

∑y = na + b∑x ………. (1)

Years : 1996 1997 1998 1999 2000 2001 2002

SYNERGY INSTITUTE OF MANAGEMENT & COMMERCE

METHOD OF MEASUREMENT OF SEASONAL INDICES:

1. Method of Simple averages :

2. Ratio to Moving Average Method :

SYNERGY INSTITUTE OF MANAGEMENT & COMMERCE

3. Ratio of Trend Method:

Deseasonalised (33.5/70)x100 (48.2/105)x100 (45.4/95)x100 (62.8/130)x100

The worth of sales in 2nd quarter =(9,00,000/125)x 95 =Rs. 6,84,000

The worth of sales in 3rd quarter = (9,00,000/125)x 80 =Rs. 5,76,000

The worth of sales in 4th quarter = (9,00,000/125)x 100 =Rs. 7,20,000

SYNERGY INSTITUTE OF MANAGEMENT & COMMERCE

IT’S YOUR TURN

Q.13 Fit a second degree parabola to the following data:

Q.16 Fit a trend function Y = A.Bx to the following data:

SYNERGY INSTITUTE OF MANAGEMENT & COMMERCE

Q.19 Eliminate trend by moving average method and comment.

Q.20 Given the following trend equation:

Q.21 The following trend equation is given:

(ii) Yt = 169.58 + 78X Origin: 1995

Q.25 Convert the following into annual trend equation.

Q.26 The following is a monthly trend equation:

Q.27 Convert the following equation into annual trend equation:

[DU B.Com. (H), 2006 (Corr.)]

Q.28 Given below is a trend equation:

Q.31 Calculate seasonal indices from the following data:

SYNERGY INSTITUTE OF MANAGEMENT & COMMERCE

Q.32 Calculate Seasonal Index by Link relative method.

Q.33 The trend equation for quarterly sales of a firm is estimated to be as

Q.34 The trend equation for quarterly sales of a firm is estimated to be as

Where t = time unit (one quarter)

SYNERGY INSTITUTE OF MANAGEMENT & COMMERCE

Q.40 The seasonal indices of sales of a firm are as under:

Q.41 Fill in the blanks:

[DU B.Com. (H), 2006