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This is part 2 of the Quiz.
Test yourself in basic finance and ERS.
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Domanda 1 di 13
1. Domanda
Suppose you had €100 in a savings account and the interest rate was 2% per year. After five years, how much do you think you would have in the account if you left the money to grow?
Corretto
That’s right! You’ll have more than €102 at the end of five years because your interest will compound over time. In other words, you earn interest on the money you save and on the interest your savings earned in prior years. Here’s how the math works. A savings account with €100 and a 2 percent annual interest rate would earn €2 in interest for an ending balance of €102 by the end of the first year. Applying the same 2 percent interest rate, the €102 would earn €2.04 in the second year for an ending balance of €104.04 at the end of that year. Continuing in this same pattern, the savings account would grow to €110.41 by the end of the fifth year.
Non corretto
No, that’s wrong. You’ll have more than €102 at the end of five years because your interest will compound over time. In other words, you earn interest on the money you save and on the interest your savings earned in prior years. Here’s how the math works. A savings account with €100 and a 2 percent annual interest rate would earn €2 in interest for an ending balance of €102 by the end of the first year. Applying the same 2 percent interest rate, the €102 would earn €2.04 in the second year for an ending balance of €104.04 at the end of that year. Continuing in this same pattern, the savings account would grow to €110.41 by the end of the fifth year.

Domanda 2 di 13
2. Domanda
Imagine leaving €1,000 in a current account that pays 2% annual interest and has no charges. What sum do you think will be available at the end of 2 years?
Corretto
That’s right! You’ll have more than €1,020 at the end of two years because your interest will compound over time. In other words, you earn interest on the money you save and on the interest your savings earned in prior years.
Here’s how the math works: A savings account with €1,000 and a 2 % annual interest rate would earn €20 in interest for an ending balance of €1,020 by the end of the first year. Applying the same 2% interest rate, the €1,020 would earn €20,40 in the second year for an ending balance of €1,040.4 at the end of that year.Non corretto
No. That is wrong. You’ll have more than €1,020 at the end of two years because your interest will compound over time. In other words, you earn interest on the money you save and on the interest your savings earned in prior years.
Here’s how the math works: A savings account with €1,000 and a 2 % annual interest rate would earn €20 in interest for an ending balance of €1,020 by the end of the first year. Applying the same 2% interest rate, the €1,020 would earn €20,40 in the second year for an ending balance of €1,040.4 at the end of that year. 
Domanda 3 di 13
3. Domanda
Imagine that the interest rate on your savings account was 1 percent per year and inflation was 2 percent per year. After 1 year, how much would you be able to buy with the money in this account?
Corretto
That’s right: You’ll be able to buy less. The reason you can buy less is inflation. Inflation is the average rate at which the price of goods and services rises. Some items may rise faster and some may decline: it is the weighted average of the basket of goods and services which matters. The rate is not what you have but it is what you can obtain with the money when spending it.
If the annual inflation rate is 2 percent but the savings account only earns 1 percent, the cost of goods and services has outpaced the buying power of the money in the savings account that year. Put another way, your buying power has not kept up with inflation.Non corretto
That’s wrong: You’ll be able to buy less. The reason you can buy less is inflation. Inflation is the average rate at which the price of goods and services rises. Some items may rise faster and some may decline: it is the weighted average of the basket of goods and services which matters. The rate is not what you have but it is what you can obtain with the money when spending it.
If the annual inflation rate is 2 percent but the savings account only earns 1 percent, the cost of goods and services has outpaced the buying power of the money in the savings account that year. Put another way, your buying power has not kept up with inflation. 
Domanda 4 di 13
4. Domanda
Please indicate whether this statement is true or false:
Buying a single company’s stock usually provides a safer return than a stock mutual fund.
Corretto
Yes, that is false. In general, investing in a stock mutual fund is less risky than investing in a single stock because mutual funds offer a way to diversify. Diversification means spreading your risk by spreading your investments. With a single stock, all your eggs are in one basket. If the price falls when you sell, you lose money. With a mutual fund that invests in the stocks of dozens (or even hundreds) of companies, you lower the chances that a price decline for any single stock will impact your return. Diversification generally may result in a more consistent performance in different market conditions.
Non corretto
No, that is false. In general, investing in a stock mutual fund is less risky than investing in a single stock because mutual funds offer a way to diversify. Diversification means spreading your risk by spreading your investments. With a single stock, all your eggs are in one basket. If the price falls when you sell, you lose money. With a mutual fund that invests in the stocks of dozens (or even hundreds) of companies, you lower the chances that a price decline for any single stock will impact your return. Diversification generally may result in a more consistent performance in different market conditions.

Domanda 5 di 13
5. Domanda
Suppose you take out a €1,000 personal loan from a bank and the interest rate you are charged is 20% per year compounded annually. If you did not pay anything off, at this interest rate, how many years would it take for the amount you owe to double?
Corretto
That’s correct. It will be 2 to 4 years. Ignoring interest compounding, borrowing at 20 percent per year would lead to doubling in five years; someone who knew about interest on interest might have selected a number less than five. Someone who knows the ‘rule of 72’ heuristic would know that it would be about 3.6 years, which makes the correct answer “2 to 4 years.” In finance, the rule of 72 is a method for estimating an investment’s doubling time. The rule number (i.e., 72) is divided by the interest percentage per period to obtain the approximate number of periods (usually years) required for doubling. The other responses reflect a misunderstanding of the concept of interest accrual.
Non corretto
That’s wrong. It will be 2 to 4 years. Ignoring interest compounding, borrowing at 20 percent per year would lead to doubling in five years; someone who knew about interest on interest might have selected a number less than five. Someone who knows the ‘rule of 72’ heuristic would know that it would be about 3.6 years, which makes the correct answer “2 to 4 years.” In finance, the rule of 72 is a method for estimating an investment’s doubling time. The rule number (i.e., 72) is divided by the interest percentage per period to obtain the approximate number of periods (usually years) required for doubling. The other responses reflect a misunderstanding of the concept of interest accrual.

Domanda 6 di 13
6. Domanda
Which of the following types of mortgage do you think will allow you from the very start to fix the maximum amount you pay and number of installments to be paid before the debt is extinguished?
Corretto
That is correct. The maximum amount you pay is the capital plus the interest which is determined at the very beginning because it carries a fixed interest rate that never fluctuates.
Non corretto
No, the correct answer is: Fixed rate mortgage. The maximum amount you pay is the capital plus the interest which is determined at the very beginning because it carries a fixed interest rate that never fluctuates.

Domanda 7 di 13
7. Domanda
Please tell whether this statement is true or false:
A 15year mortgage typically requires higher monthly payments than a 30 year mortgage but the total interest over the life of the loan will be less.
Corretto
That is correct. Assuming the same interest rate for both loans, you will pay less in interest over the life of a 15year loan than you would with a 30year loan because you repay the principal at a faster rate. This also explains why the monthly payment for a 15year loan is higher. Let’s say you get a 30year mortgage at 6% on a €150,000 home. You will pay €899 a month in principal and interest charges. Over 30 years, you will pay €173,757 in interest alone. But a 15year mortgage at the same rate will cost you less. You will pay €1,266 each month but only €77,841 in total interest—nearly €100,000 less.
Non corretto
That is incorrect. True. Assuming the same interest rate for both loans, you will pay less in interest over the life of a 15year loan than you would with a 30year loan because you repay the principal at a faster rate. This also explains why the monthly payment for a 15year loan is higher. Let’s say you get a 30year mortgage at 6% on a €150,000 home. You will pay €899 a month in principal and interest charges. Over 30 years, you will pay €173,757 in interest alone. But a 15year mortgage at the same rate will cost you less. You will pay €1,266 each month but only €77,841 in total interest—nearly €100,000 less.

Domanda 8 di 13
8. Domanda
When is it more prudent to consider a lifetime mortgage/home reversion?
Corretto
Yes, that is right. Older than 55 years old. The minimum age at which you can take out a lifetime mortgage usually it is 55. However, since we are all living longer so the earlier you start the more it is likely to cost in the long run.
Non corretto
No. That is wrong. The correct answer is: Older than 55 years old. The minimum age at which you can take out a lifetime mortgage usually it is 55. However, since we are all living longer so the earlier you start the more it is likely to cost in the long run.

Domanda 9 di 13
9. Domanda
Please tell whether this statement is true or false:
Equity release can be more expensive than an ordinary mortgage.
Corretto
Yes, that is true. Equity release can be more expensive in comparison to an ordinary mortgage. If you take out a lifetime mortgage you will normally be charged a higher rate of interest than you would on an ordinary mortgage and your debt can grow quickly if the interest is rolled up. It is worth pointing out that house price growth might also be evident. Your plan provider needs to factor in the safeguards they are providing you with (such as the no negative equity guarantee and a fixed interest rate for the life of the plan) in their calculations and can, therefore lend you at an interest rate that is different than that of an ordinary mortgage. ERS costs more because you make no repayments, you pay no interest for many years and the lender agrees not to recover from you or your successors an amount in excess of the value of your home. This ceiling is commonly referred to as a no negative equity guarantee.
Non corretto
No, it is true. Equity release can be more expensive in comparison to an ordinary mortgage. If you take out a lifetime mortgage you will normally be charged a higher rate of interest than you would on an ordinary mortgage and your debt can grow quickly if the interest is rolled up. It is worth pointing out that house price growth might also be evident. Your plan provider needs to factor in the safeguards they are providing you with (such as the no negative equity guarantee and a fixed interest rate for the life of the plan) in their calculations and can, therefore lend you at an interest rate that is different than that of an ordinary mortgage. ERS costs more because you make no repayments, you pay no interest for many years and the lender agrees not to recover from you or your successors an amount in excess of the value of your home. This ceiling is commonly referred to as a no negative equity guarantee.

Domanda 10 di 13
10. Domanda
Please tell whether this statement is true or false:
A life time mortgage and a home reversion are equivalent.
Corretto
Yes. That is correct. A lifetime mortgage is a longterm loan taken out against your home, with interest charged on what you’ve borrowed. It’s a type of equity release covered by the eventual sale of the home, and you are protected by the no negative equity guarantee. Interest rates are likely to be high, and the longer you live there (lifetime mortgages can start at age 55), the more in total you have to pay. Most lifetime mortgages have fixed interest rates, but even if they are variable, there must be a fixed cap that it cannot go over. A home reversion plan is a type of equity release where you sell all or part of your home and get lumpsum or regular payments. While you will not receive a figure close to the true market value of the property, as the buyer cannot make a return on their investment – ie: sell it – until you die or move into longterm care, the percentage you own and sold will not change regardless of house price changes.
Non corretto
No, it is wrong. A lifetime mortgage is a longterm loan taken out against your home, with interest charged on what you’ve borrowed. It’s a type of equity release covered by the eventual sale of the home, and you are protected by the no negative equity guarantee. Interest rates are likely to be high, and the longer you live there (lifetime mortgages can start at age 55), the more in total you have to pay. Most lifetime mortgages have fixed interest rates, but even if they are variable, there must be a fixed cap that it cannot go over. A home reversion plan is a type of equity release where you sell all or part of your home and get lumpsum or regular payments. While you will not receive a figure close to the true market value of the property, as the buyer cannot make a return on their investment – ie: sell it – until you die or move into longterm care, the percentage you own and sold will not change regardless of house price changes.

Domanda 11 di 13
11. Domanda
Please say whether this statement is true or false:
Under a lifetime mortgage/home reversion the bank can ask you to leave your house.
Corretto
Yes. That is False. One of the principal qualities of ERS in comparison to the alternatives of downsizing or letting the property or subletting part of the property is that the householder remains in his/her current home without a change in the occupancy. You have the right to remain in your property for life or until you need to move to longterm care, provided the property remains your main residence and you abide by the terms and conditions of your contract (Equity Release Council standard). Moreover, you have the right to move to another property subject to the new property being acceptable to your product provider as continuing security for your equity release loan (Equity Release Council standard). Different lifetime mortgage providers might have slightly different thresholds. With a home reversion plan, you have a lifetime lease – you live there rentfree before the house is sold when you no longer need to live in it.
Non corretto
No, that is False. One of the principal qualities of ERS in comparison to the alternatives of downsizing or letting the property or subletting part of the property is that the householder remains in his/her current home without a change in the occupancy. You have the right to remain in your property for life or until you need to move to longterm care, provided the property remains your main residence and you abide by the terms and conditions of your contract (Equity Release Council standard). Moreover, you have the right to move to another property subject to the new property being acceptable to your product provider as continuing security for your equity release loan (Equity Release Council standard). Different lifetime mortgage providers might have slightly different thresholds. With a home reversion plan, you have a lifetime lease – you live there rentfree before the house is sold when you no longer need to live in it.

Domanda 12 di 13
12. Domanda
Please say whether this statement is true or false:
The “nonegative equity garantee” clause is a way for the bank/insurance company to take your money.
Corretto
Yes. It is false. The ”no negative equity guarantee” means that the amount you have to pay back is limited, regardless of house price changes, and you will never fall into negative equity. Most providers belong to the Equity Release Council (formerly known as Safe Home Income Plans or SHIP), which provides the no negative equity guarantee. In other words, the loan plus the interest can never be higher than the value of your home, even if the actual value of the home takes a turn for the worse, and your estate will not be liable if the amount left over is not enough to pay for the loan, which would then be written off. So when the time comes for you to leave the house – moving into care, or on death – your dependents will not be faced with extra debt.
Non corretto
No, it is false. The ”no negative equity guarantee” means that the amount you have to pay back is limited, regardless of house price changes, and you will never fall into negative equity. Most providers belong to the Equity Release Council (formerly known as Safe Home Income Plans or SHIP), which provides the no negative equity guarantee. In other words, the loan plus the interest can never be higher than the value of your home, even if the actual value of the home takes a turn for the worse, and your estate will not be liable if the amount left over is not enough to pay for the loan, which would then be written off. So when the time comes for you to leave the house – moving into care, or on death – your dependents will not be faced with extra debt.

Domanda 13 di 13
13. Domanda
If interest rates rise, what will typically happen to bond prices?
Corretto
Yes, that is correct. When interest rates rise, bond prices fall. And when interest rates fall, bond prices rise. This is because as interest rates go up, newer bonds come to market paying higher interest yields than older bonds already in the hands of investors, making the older bonds worth less.
Non corretto
No, that’s incorrect. When interest rates rise, bond prices fall. And when interest rates fall, bond prices rise. This is because as interest rates go up, newer bonds come to market paying higher interest yields than older bonds already in the hands of investors, making the older bonds worth less.
Suggerimento
A bond is a debt investment in which an investor loans money to an entity (typically corporate or governmental) which borrows the funds for a defined period of time at a variable or fixed interest rate. Bonds are used by companies, municipalities, states and sovereign governments to raise money and finance a variety of projects and activities.