Reference no: EM132497858
A group of trainees that have clerical experience have been hired by the Human Resources Department to fill entry level positions in the economic division of the finance department. As the financial manager, you have been as the instructor to conduct a training/review session on the real rate of interest for these trainees.
In an illustrative example figure out a scenario that you will present to these trainees to explain the real and nominal rates of return. The illustrative example should contain the following key points.
-How much money will an individual have at the end of 1 year if they forego a purchase today and invest in a risk-free Treasury security that is expected to earn 11% nominal rate of interest.? They currently have $150 as of today. The consensus forecast of leading economists a 5% rate of inflation.
-If a purchase on an item today that cost $150 is foregone, how much would you expect the item to cost at the end of 1 year?
-Using the findings in the previous to responses, determine how many $150 items (fractions are OK) can be purchased at the end of 1 year. In percentage terms, how many more or fewer $150 items can be purchased at the end of 1 year?
-What is the real rate of return over the year? How is it related to the percentage
-change in buying power? Explain.