Question

1. The yield curve spread between the 10-year T-bond yield and the federal funds rate is a –––– economic indicator

3. The geometric average of -12%,20%, and 25% is ?

Answer 1

Part 1:
Answer: Leading
The yield curve spread between the 10-year T-bond yield and the federal funds rate is a leading economic indicator.

Part 2:
Geometric average annual return=[(1+Rate of return in year 1)*(1+Rate of return in year 2)*(1+Rate of return in year 3)]^(1/Number of years) -1

Rate of return in year 1=-12%
Rate of return in year 2=20%
Rate of return in year 3=25%

Number of years=3

Geometric average annual return= [(1-12%)*(1+20%)*(1+25%)]^(1/3) -1
= [(0.88)*(1.2)*(1.25)]^(1/3) -1
= 1.32^(1/3) -1
=1.09696131 -1
=0.09696131 or 9.70% (Rounded to 2 decimal places)