Interest rates, part 2.

Consider the average annual interest rates we saw in Exercise 34.

That exercise showed a linear model fit to these data.

a) Fit a linear trend model to this series but do not use the values for 2005 and 2006.

b) Fit an exponential trend model to this series but do not use the values for 2005 and 2006.

c) Use both models to forecast the average interest rate for 2005 and 2006. Which model produces better forecasts?

d) What other time series components (besides trend) are likely present in this series?