Interest rates and the term structure

Interest rates and the term structure

1. 1. A credit card has an APR of 18% with monthly compounding. What is the EAR? Answer as a percent to two decimals.

   %

2. 2. Nominal interest rate i = 6%, inflation π = 3%. Using the approximate Fisher equation r ≈ i − π, what is the approximate real rate? Answer as a percent.

   %

3. 3. Why has yield-curve inversion historically been associated with recession?

   Inversion directly causes a recessionIt typically reflects Fed tightening pushing short rates up while markets expect lower long-run growth and inflationIt reflects an SEC rule changeInversion lowers consumer confidence directly

4. 4. If 2022 had nominal Treasury yields around 4% and US inflation near 9%, what was approximately true of real returns on cash?

   Positive and large, around +5%Roughly zeroNegative, around −5%Equal to the nominal rate