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thanks for solution

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

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

PV = 64394.65

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%


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




The formula for yield to maturity is:

Price = Coupon payment   + Face value

               (1+i)^n                  (1+i)^n

here, price = 850

face value = 1000

coupon payment = 6% *1000 = 60

putting values

850 = 60   + 1000

      (1+i)^1  (1+i)^1

850 = 1060 / (1+i)^1

(1+i) = 1060 / 850

1+i = 1.2470

i = 1.2470 - 1 = 0.2470 = 24.70%

so YTM = 24.70%


Assignment #01:




University fee=200, 000

Interest rate compounded annually= 12%

Years= 10

Present value=?




Present value= R.s 64395.6468 answer.





Coupon bond= 6%

Face value= Rs.1, 000

Selling price = Rs.850

 Yield to maturity =?


Discount= par value- Selling price

Discount= 1000-850


Years to maturity= 1year

Yearly interest =60

Annualized return= Annualized capital gain+ yearly interest

Total annualized return= 150+60

Total annualized return= 210


Yield to Maturity= 24.70%



 Question No. 2:





GDP deflator:

                GDP deflator, also called the implicit price deflator for GDP, measure the price of output relative to its price in the base year. It reflects what’s happening to overall level of price in economy.



Difference between GDP deflator and CPI (Consumer Price Index):

GDP deflator:

CPI (Consumer Price Index)

  • GDP deflator measured the price of output relative to its price in base year.
  • It reflects the overall level of price in the economy.
  • GDP deflator is also called implicit price deflator.


  • CPI measures the overall level of price.
  • Track change in the typical household’s cost of living.
  • Aloe comparisons of dollar figures from different years.












 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:














Nominal GDP

Real GDP


Rs. 48,300

Rs. 46,200







 How you will measure the inflation rate based on the above data?

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



GDP Deflator2009 = 104.545

GDP Deflator2010= 106.667


Inflation rate2010 =2.029%


GDP Deflator2011= 111.886


Inflation rate2011 = 4.8927%


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