Real and nominal rates interest Zane Perelf currenty has $120 that ho can spend today on socks costing $3,00 each. ARematlvely, he could invest the 5120 in a risk-ftee US $ Treasury securty that is expected to earn a 11% nominal rate of interest. The consentus forecast of leading economists is a 5% rate of inflation over the coming year a. How many socks can Zane purchase today? b. How much moncy will Zane have at the end of 1 year if he forgoes purchasing the socks today and invests his money instead? (lgnore taxes) c. How nuich would you expect the socks to cost at the end of 1 year in light of the expected inflation? d. Uoo your findings in parts b and c to deternine how many socks (fractions are OK) Zane can purchase at the end of 1 year In percentage tecms. how many tnore or fower socks can Zane buy at the end of 1 year? e. What is Zone's appronemate rear rate of return over the year? How is ir letated to the percentage change in Zane's buying pener found in part d? Explain Real and nominal rates interest. Zane Perell currently has $120 that he can spend today on socks costing $300 each. Atomatwoly, he could invest the $120 in a risk. free U. S a. The number of socks Zane can purchase today is socks (Round to the nearest whole number) b. The amount of money zene wall have at the end of 1 year if he forgoes puichasing the socks today is 5 (Round to the neatest cent) C. The expected pilce of the socks at the end of 1 year in light of the expected inflation is 5 (Round to the nearest cent.) d. Using your fendings in parts b and c. the number of rocks Zane can purchase at the end of 1 year is thirts (Round to four decmal places) In percentage leims, the more or lewer nocks Zane can buy at the end of 4 year is . (Round to the nearest whole petcent) 6. Zaneis approninate reak rake of retum ower the year is (Ro. (Round to the nearest whole peicent) How is the real rate of return ralated to the percentego change in Zano b byying power found in pat d? (Select fram the drop-down menu) The change in the number of socksits that can bet purchased is equal 10 the the ablity to purchase the same namber of socks a. How many socks can Zaoe purchase joday? 4. The rumber of socks zase can purchase loday is socks (Pound io the nearest whole tumber) b. The awount of maney Zane aithwe at the end et 1 year it he dorgoes purctining te lacks baday as (RRound wo the rearost cent) c. The epected price of the sods ut the and of 1 weor in loth of the expicted indasion is! (Riond to the neareat cent) Tha change in tie mutiber of societs fut cas tes furchaied is equal to the nameter at sada
