1. Retford Bank pays a 3.30% nominal rate on deposits, with monthly compounding. What effective annual rate (EFF%) does the bank pay?
4.05%
3.52%
3.55%
3.35%
4.09%
2. Suppose 1-year T-bills currently yield 7.00% and the future inflation rate is expected to be constant at 2.70% per year. What is the real risk-free rate of return, r*? The cross-product term should be considered , i.e., if averaging is required, use the geometric average.
4.56%
3.68%
4.19%
4.65%
4.15%