Idea Solution :
Question: 1
a) Today, most of the people in our country acknowledge the importance of education in our lives. Therefore, Mr. Akram is also planning to provide the best education to his son. In this regard, he is planning to set aside a handsome amount for his son education. Suppose the university fee of his son after 10 years will be Rs.200, 000. His bank is offering him 12% interest rate compounded annually. How much amount he has to deposit in his bank account today in order to get Rs.200, 000 from his bank after 10 years? Solution:
Present value =FV/ (1+i) ^n
Hence: FV= future value=2, 00,000 I =interest rate =12% n= number of years
= Future value / (1+interest) ^Number of Years = By putting the values in the PV formula: =2, 00,000 / (1+12%) ^10Year =2, 00,000/ (1.12) ^10Years =2, 00,000/3.105848
Ans: Present Value = 64394.65
B) Suppose you have some extra funds with you and you want to make investment in bonds with those funds. Currently a 6% coupon bond with face value of Rs.1, 000 is selling at Rs.850. If you want to keep that bond till its maturity (which is one year), then what will be the yield to maturity of this bond? Solution:
Face value= Rs1, 000/- Selling price =Rs850/- Coupon bond =6% Maturity date= 1 year
Hence:
1000-850=150 150/1year=150 150+60=210 1000-150=850 210/850x100 Ans= Yields to maturity=24.7%
Question No. 2: a) Define GDP deflator and explain how it differs from CPI (Consumer Price Index) although both are used to measure inflation rate in an economy?
Solution: These are the differences between the CPI and the GDP Deflator:
s. no GDP Deflator CPI (Consumer Price Index)
1 It measures or reflects the prices of all the
goods and the services which are produced
within the countries.
It measures or reflects the price of all the goods
and the Services which are purchased by the
consumers.
2 It includes only domestic goods. It includes anything bought by consumers including
foreign goods.
B) Suppose you are given the responsibility to calculate the inflation rate prevailing in an economy. You,
along with your team members, collect the following data related to that particular economy:
Solution:
Definition:
GDP deflator is call price implicit of GDP which measures of the prices of outputs in the based years. It also
reflects what happened on the overalls levels of the prices in economy.
S. NO YEAR NOMINAL GDP REAL GDP GDP DEFLATOR= (Nominal
GDP / Real GDP) × 100
INFLATION RATE= {(CPI current
period – CPI preceding period) /
CPI preceding period
)}X100
1 2009 48300 46200 104.58 N.A
2 2010 54400 51000 106.70 2.08
3 2011 59300 53000 (111.8 4.9
Extra calculation:
2009
GDP Deflator = (Nominal GDP / Real GDP) × 100
= (4830 / 46200) x100
= (104545) x100
GDP Deflator 09 = 104.54
2010
GDP Deflator = (5440/51000) x 100
= (106666) x100
GDP Deflator 10 = 106.67
2011 GDP Deflator = (59300/53000) x100 = (11188679) x100 GDP Deflator 11 =111.9 Inflation rate: Formula: Inflation rate = {(CPI current period – CPI preceding period) / CPI preceding period} X100
2009 = inflation rate = n.a
2010= inflation rate = (106.67-104.54)/104.54)x100= 2.0375
2011= inflation rate= (111.89-106.67)/106.67) x100 =4.9