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Zane Perelli currently has $116 that he can spend today on socks costing $2.90 each. ​ Alternatively, he could invest t...

Zane Perelli currently has $116 that he can spend today on socks costing $2.90 each. ​ Alternatively, he could invest the
​$116 in a​ risk-free U.S. Treasury security that is expected to earn a 9​% nominal rate of interest. The consensus forecast of leading economists is a 4% rate of inflation over the coming year.
a.How many socks can Zane purchase​ today?
b.How much money will Zane have at the end of 1 year if he forgoes purchasing the socks today and invests his money​ instead? ​ (Ignore taxes.)
c.How much would you expect the socks to cost at the end of 1 year in light of the expected​ inflation?
d.Use your findings in parts b and c to determine how many socks​ (fractions are​ OK) Zane can purchase at the end of 1 year. In percentage​ terms, how many more or fewer socks can Zane buy at the end of 1​ year?
e.What is​ Zane's real rate of return over the​ year? How is it related to the percentage change in​ Zane's buying power found in part
d​?
Explain.
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Answer #1

As per rules I am answering the first 4 subparts of the question

a No of socks that Zane can buy=Amount/Price 40
b Amount with Zane after 1 year=PV*(1+rate)^1 126.44
c Price of socks after 1 year=Price*(1+rate) 3.016
d No of socks that Zane can buy=Amount/Price 41.9231

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