Last Date of Submission: November 10, 2009
Marks: 20
· Make sure that you upload the solution file before due date. No assignment
will be accepted through e-mail after the due date.
Formatting guidelines
· Use the font style “Times New Roman” and font size “12”.
· Compose your document in MS-Word 2003 or MS Excel 2003.
· Use black and blue font colors only.
Solution guidelines
· The student will work individually and has to write in the form of an
analytical assignment.
· Give the answer according to question. Formula should be provided along
with the solution.
Please note that your assignment will not be graded if:
· It is submitted after due date
· The file you uploaded does not open
· The file you uploaded is copied from some one else
· It is in some format other than .doc or .exl
· Cheating or copying of assignment is strictly prohibited. The cheated or
copied assignment will be marked as Zero.
Question # 1 (Marks 4)
Determine the future value of an investment of Rs.100 for 12 months at the following
interest rates:
a- 5%
b- 1%
Question # 2 (Marks 6)
According to the data given below, calculate the GDP deflator and inflation rate.
Years Nominal GDP Real GDP GDP deflator Inflation rate
1997 Rs. 60,000 Rs. 60,000
1998 70,100 65,200
1999 81,200 74,600
Question # 3 (Marks 10)
Assume that the economy can experience high growth, normal growth, or recession. You
expect the following stock-market returns for the coming year under these conditions:
State of the Economy Probability Return
High Growth 0.3 +30%
Normal Growth 0.4 +12%
Recession 0.2 -15%
a. Compute the expected value of a Rs.1000 investment both in dollars and as a
percentage over the coming year.
b. Compute the standard deviation of the return as a percentage over the coming
year.
c. If the risk-free return is 7 percent, what is the risk premium for a stock market
investment?
Marks: 20
· Make sure that you upload the solution file before due date. No assignment
will be accepted through e-mail after the due date.
Formatting guidelines
· Use the font style “Times New Roman” and font size “12”.
· Compose your document in MS-Word 2003 or MS Excel 2003.
· Use black and blue font colors only.
Solution guidelines
· The student will work individually and has to write in the form of an
analytical assignment.
· Give the answer according to question. Formula should be provided along
with the solution.
Please note that your assignment will not be graded if:
· It is submitted after due date
· The file you uploaded does not open
· The file you uploaded is copied from some one else
· It is in some format other than .doc or .exl
· Cheating or copying of assignment is strictly prohibited. The cheated or
copied assignment will be marked as Zero.
Question # 1 (Marks 4)
Determine the future value of an investment of Rs.100 for 12 months at the following
interest rates:
a- 5%
b- 1%
Question # 2 (Marks 6)
According to the data given below, calculate the GDP deflator and inflation rate.
Years Nominal GDP Real GDP GDP deflator Inflation rate
1997 Rs. 60,000 Rs. 60,000
1998 70,100 65,200
1999 81,200 74,600
Question # 3 (Marks 10)
Assume that the economy can experience high growth, normal growth, or recession. You
expect the following stock-market returns for the coming year under these conditions:
State of the Economy Probability Return
High Growth 0.3 +30%
Normal Growth 0.4 +12%
Recession 0.2 -15%
a. Compute the expected value of a Rs.1000 investment both in dollars and as a
percentage over the coming year.
b. Compute the standard deviation of the return as a percentage over the coming
year.
c. If the risk-free return is 7 percent, what is the risk premium for a stock market
investment?
Solution:
Q1:
Formula for FV:
FV=PV*(1+i) ^n
(a) PV=100, i=5%, n=12 months = 1 year
By putting the values:
FV=100*(1+.05) ^1
FV=Rs.105
(b)
PV=100, i=1%, n=12 months = 1 year
By putting the values:
FV=100*(1+.01) ^1
FV=Rs.101
Q2:
FORMULA FOR GDP DEFLATOR:
GDP Deflator = (Nominal GDP / Real GDP) ×100
FORMULA FOR INFLATION RATE:
Inflation rate=GDP deflator (current year)-GDP deflator (base
year)/GDP deflator (base year)*100
FORMULA FOR INFLATION RATE:
Inflation rate=GDP deflator (current year)-GDP deflator (base
year)/GDP deflator (base year)*10
Years Nominal GDP Real GDP GDP deflator Inflation rate
1997 Rs. 60,000 Rs. 60,000 100 n/a
1998 70,100 65,200 107.5 7.5
1999 81,200 74,600 108.8 1.2
Q3:
a)
Expected Value = 0.3(1000)(1+30%) + 0.4(1000)(1+12%) +0.2(1000)(1-15%) = 1008
Expected Return = 0.3(30%) + 0.4(12%) + 0.2(-15%) = 10.8%
b) Standard Deviation
= 0.3(30 -12.9%)2 + 0.4(12 -12.9%)2 + 0.2(-15 -12.9%)2
= 87.723 + 0.324 + 155.682
= 243.729
Take Under root of above Value..
=15.611
c) Risk Premium = 10.8% - 7% = 3.8%
Formula for FV:
FV=PV*(1+i) ^n
(a) PV=100, i=5%, n=12 months = 1 year
By putting the values:
FV=100*(1+.05) ^1
FV=Rs.105
(b)
PV=100, i=1%, n=12 months = 1 year
By putting the values:
FV=100*(1+.01) ^1
FV=Rs.101
Q2:
FORMULA FOR GDP DEFLATOR:
GDP Deflator = (Nominal GDP / Real GDP) ×100
FORMULA FOR INFLATION RATE:
Inflation rate=GDP deflator (current year)-GDP deflator (base
year)/GDP deflator (base year)*100
FORMULA FOR INFLATION RATE:
Inflation rate=GDP deflator (current year)-GDP deflator (base
year)/GDP deflator (base year)*10
Years Nominal GDP Real GDP GDP deflator Inflation rate
1997 Rs. 60,000 Rs. 60,000 100 n/a
1998 70,100 65,200 107.5 7.5
1999 81,200 74,600 108.8 1.2
Q3:
a)
Expected Value = 0.3(1000)(1+30%) + 0.4(1000)(1+12%) +0.2(1000)(1-15%) = 1008
Expected Return = 0.3(30%) + 0.4(12%) + 0.2(-15%) = 10.8%
b) Standard Deviation
= 0.3(30 -12.9%)2 + 0.4(12 -12.9%)2 + 0.2(-15 -12.9%)2
= 87.723 + 0.324 + 155.682
= 243.729
Take Under root of above Value..
=15.611
c) Risk Premium = 10.8% - 7% = 3.8%
regards
vuexpert
.BMP)
