Chapter 6, Problem 6.3P

Subpart (a):

Summary Introduction

To determine: Quantity of socks purchased within the limited income.

Introduction:

Budget constraint:

Budget constraint refers to all the possible combinations of goods and services that can be purchased with the entire income, at a given price level.

Subpart (b):

Summary Introduction

To determine: Future value.

Introduction:

Future value (FV): The future value refers the value of present amount at a future date adjusted with the discount rate.

Subpart (c):

Summary Introduction

To determine: Future price.

Subpart (d):

Summary Introduction

To determine: Quantity of socks and change in percentage.

Subpart (e):

Summary Introduction

To determine: Real rate of return.

Introduction:

The term return refers to a profit or gain made on an investment that is usually expressed in terms of percentage or dollars. The percentage total return shows the overall performance and efficiency of the amount invested.

The nominal rate of return refers to a return from an investment before considering the inflation rate, taxes, and other external expenses.

The real rate of return refers to an annual return earned from an investment.  This is regulated for fluctuations in price as a result of inflation rate and other external effects.