**Could you please explain as to why my answers are wrong. I want to understand this. Thank you.**

A. Consider the solution to the particular retirement planning example given in Table 5.1 in the text. The main parameters for the example are: (1) a real interest rate of 3%, (2) a working life of 30 years, (3) a retirement period of 15 years, and (4) a constant annual real labor income of $30,000.

If the real interest rate rises to 5%, in what directions will annual preretirement saving and permanent income adjust?

Your Answer: permanent income and saving will both rise.

Correct Answer: permanent income will rise and saving will fall.Incorrect. Only permanent income will rise.

B, What will happen to the initial value of human capital if the interest rate rises to 5%?

Your Answer: the initial value of human capital will rise

Correct Answer: the initial value of human capital will fall