To forecast the average mortgage rate in 2017 using the given second-order autoregressive model, we need to substitute the values for 2015 and 2014 into the equation:
Rate(2015) = 2.0
Rate(2014) = 4.0
Using the equation:
Rate(2017) = 0.5 + 1.0 * Rate(2015) - 0.5 * Rate(2014)
Substituting the values:
Rate(2017) = 0.5 + 1.0 * 2.0 - 0.5 * 4.0
Rate(2017) = 0.5 + 2.0 - 2.0
Rate(2017) = 0.5
Therefore, the forecast for the average mortgage rate in 2017 is 0.5.
A second-order autoregressive model for annul average mortgage rate is:
Rate i = 0.5 + 1.0(Rate) i-1 - 0.5 (Rate) i-2
If the average mortgage rate in 2015 was 2.0, and in 2014 was 4.0, the forecast for 2017 is
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