Use the following information to answer Questions 9 through 11 Barry operates a

Question

Use the following information to answer Questions 9 through 11 Barry operates a shop in a resort area known for its high inflation rate. The ion rate for the last few years has been averaging 3 percent a month. His long term real rate of return is 12 percent annually. On June 1, he anticipates that sales, in real dollars, during the summer of 20X2 will be as follows. BARRY'S ESTIMATED INFORMATION FOR SALES FOR SUMMER MONTHS OF 20X2 June July August 40,000 50,000 36,000 9. What is the nominal rate of return on a monthly basis for Barry's shop during the summer of 20X2? (a) 0.0403 (b) 0.0430. (c) 0.1500. (d) 0.0400 10. What will the sales figures be for each month, assuming the owner uses the real rate approach? June (a) $ 40,000 (b) $41,200 (c) 40,000 (d) $41,200 July 51,500 $ 53,044 S 50,000 $ 51,500 August 38,192 S 39,338 S 36,000 S 39,338

Explanation / Answer

9) Monthly real rate of return = 12%/12 = 1%

Nominal rate of return on monthly basis = (1.01*1.03) - 1 = 1.0403 - 1 = 0.0403

10) (c)

11) (a)

40000*1.03 = 41200

50000*1.03 = 51500

36000*1.03 = 37080

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