Answer the following six subquestions:

1. Suppose you had $100 in a savings account and the interest rate was 2 percent per year. After five years, how much do you think you would have in your account if you left the money to grow?

a. More than $102

b. Exactly $102

c. Less than $102

d. Do not know

2. Imagine that the interest rate on your savings account was 1 percent per year and inflation was 2 percent per year. After one year, how much would you be able to buy with the money in your account?

a.More than today

b. Exactly the same

c. Less than today

d. Do not know

3. If interest rates rise, what will typically happen to bond prices?

a. They will rise

b. They will fall

c. They will stay the same

d. There is no relationship between bond prices and the interest rates

e. Do not know

4. Is the following statement true or false? A 15-year mortgage typically requires higher monthly payments than a 30-year mortgage, but the total interest paid over the life of the loan will be less.

a.True

b. False

c. Do not know

5. Is the following statement true or false? Buying a single company’s stock usually provides a safer return than a stock mutual fund.

a. True

b. False

c. Do not know

6. Suppose you owe $1,000 on a loan and the interest rate you are charged is 20 percent per year compounded annually. If you didn’t pay anything off, at this interest rate, how many years would it take for the amount you owe to double?