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# Assignment # 2 Discussion and Solution Last Date: Nov 29, 2012

Question No. 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? (5 marks)

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? (5 marks)

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? (4 marks)

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:
Years      Nominal GDP       Real GDP
2009       Rs. 48,300          Rs. 46,200
2010       54,400                51,000
2011       59,300                 53,000
How you will measure the inflation rate based on the above data? (6 marks)

Note: You are required to provide complete working and formulas while calculating GDP deflator
and Inflation rate.

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### Replies to This Discussion

Please Discuss here about this assignment.Thanks

Our main purpose here discussion not just Solution

g guys mujy tu just  last Q.ata hai jo easy hai baki ap sub dicusse kero ider sub qs ta k mujy b un ka pata chal jay

GDP= nominal GDP/real GDP*100

its a formula u put it and find out GDP when u find GDP deflator then u would be find inflation rate.

Q1 a) - PV = FV/(1 + i)^n

Present Value = Future Value/ (1+(interest))^years

PV = 64394.65

You cant check the answer at ---> http://www.investopedia.com/calculator/pvcal.aspx#axzz2DMQFJocV

b) -

Subtract the purchase price (850) from par value (1000) = 150

Divide the discount (150) by the remaining years to maturity (1) of the bond = 150

Add the annualized capital gain (150) to the yearly interest (60), to obtain total annualized return (210)

Subtract annualized capital gain (150) from par (1000), to obtain 850.

Divide the annualized return (210) by the result from the previous step (850), Yield to Maturity 24.70%

(Method taken from : http://www.wikihow.com/Calculate-Yield-to-Maturity)

Can check the answer : http://www.investopedia.com/calculator/aoytm.aspx#axzz2DMQFJocV

Q2 a) - Although at first glance it may seem that CPI and GDP Deflator measure the same thing, there are a few key differences.  The first is that GDP Deflator includes only domestic goods and not anything that is imported.  This is different because the CPI includes anything bought by consumers including foreign goods.  The second difference is that the GDP Deflator is a measure of the prices of all goods and services while the CPI is a measure of only goods bought by consumers.

b) - GDP Deflator = (Nominal GDP / Real GDP) ×100

Inflation rate = (Current Year’s GDP Deflator – Previous Year’s GDP Deflator) / Previous Year’s GDP Deflator X 100

Inflation Rate

n.a

2.1%

4.9%

Most of this is copied directly from the website, kindly rephrase before you submit.

hmmmmmmmmmm

Thank u Nadia

i think 2.1 and  4.9 %  is not right answer it can be  calculate only by this....current GDP dflator - Prev GDP deflator that is 2.1,,, Whearese formula is current year's GDP deflator - prvs year / prvs yaer * 100.. so put your values and count that is 6.67 something not 2.1

Current Year’s GDP Deflator – Previous Year’s GDP Deflator) / Previous Year’s GDP Deflator X 100
Current Year’s GDP Deflator – Previous Year’s GDP Deflator) / Previous Year’s GDP Deflator X 100

no 2.1 & 4.9 are correct answers..

wah re Nadia cha gae ho tum to

only idea solution for hard working students.

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THANKS RAI IRFAN...........UR IDEA SOLUTION IS HELPFULL

thank u soooooooo much bhai

nadia i think ur Q 1 option b is wrong.how 24.70%.i cant undrstand.check my sol

Part (b)

Solution:

Yield to maturity

t = 1

r= 2

=    ( 8 × 0.980) + (1000 × 0.980)

=    7.84 + 980

=    987.84

t= 1

r=8

=   (8 × 0.926) + (1000 ×0.926)

=   7.408 + 926

=   933.40

Using formula:

=  2 + (  987.84 – 850 / 987.84 - 933.40) × 6

=   2 + (137.84 / 54.44) × 6

=   2 + (2.53196) × 6

=   17.19% ans

ye kam hi kisi ko samaj ay ga par ye ak consept k teht howa ha.book (CIMA) P1 performance operation writer bob scarlett.

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