3. You are looking to buy a car and you have been offered a loan with an APR of 6%, compounded monthly.

a. What is the true monthly rate of interest?

b. What is the EAR?

Problems

• The shape of the yield curve tends to vary with investors’

expectations of future economic growth and interest rates. It tends to be inverted prior to recessions and to be steep coming out of a recession. Because investors view long-term loans as riskier, long-term rates are generally higher than short-term rates.