1. A commercial bank offers a farmer a nominal interest rate of 5% when the inflation rate is 1.5%. What is the real interest rate?

       4.50%

       2.50%

       5.00%

       6.50%

       3.50%

2. Suppose a market basket of goods cost $150 today. If inflation is 1.7% per year and interest rates are 2.5%, what would be the nominal price of this market basket one year from today? Hint: This is NOT an investment.

        $150.00

       $153.75

       $152.55

       $156.30

       $147.45

       $151.20

       $146.25

3. A farmer decides to invest $8,000 today at a nominal compound interest rate of 1.5%. Suppose inflation is 2.2% per year. What is the nominal value of the farmer's investment after 5 years?

        $8,618.27

       $7,426.08

       $8,832.65

       $8,600.00

       $10,210.25

       $8,285.98

       $7,723.89

       none of the above

4. A farmer decides to invest $8,000 today at a nominal compound interest rate of 1.5%. Suppose inflation is 2.2% per year. What is the real value of the farmer's investment after 5 years?

        $8,285.98

       $7,723.89

       $8,832.65

       $7,720.00

       $10,210.25

       $8,618.27

       $8,600.00

       none of the above