Recently, fixed mortgage rates have been at historical lows due to the housing slowdown. Data in the Excel file mortgage rates.xlsx show the average 30-year fixed mortgage rate for the month of December every year between 1989 and 2012, as reported by Freddie Mac.

a. Construct a graph showing the average December mortgage rate over time.

b. Forecast the average December mortgage rate in 2013 using a trend projection.

c. Calculate the MAD for this forecast.

d. Check for the presence of positive autocorrelation.

e. What limitations do you foresee with this forecasting method projecting mortgage rates several years into the future?

AppendixLO1