MGT411 GDB # 1 Solution

Gross Domestic Product:


In economics, GDP uses for gross domestic product-the total value of all goods and services produced within that economy during a specified period.

The GDP deflator is a price index compute changes in prices of all new, nationally and internally produced, final goods and services in an economy.

The GDP deflator is not based on a fixed market basket of goods and services. The basket is allowed to change with people's consumption and investment patterns. Therefore, new expenditure patterns are allowed to show up in the deflator as people respond to changing prices.

Consumer price Index:

A measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food and medical care. The CPI is calculated by taking price changes for each item in the predetermined basket of goods and averaging them; the goods are weighted according to their importance. Changes in CPI are used to assess price changes associated with the cost of living.

Which is better Measure::

Although at first glance it may seem that CPI and GDP Deflator measure the same thing, there are a few key differences:

a) 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.

b) 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.
....................
Consumer price index (CPI)

1) Measure of the overall level of price used to.(2)Track change in the typical household's cost of living.(3)Survey consumers to determine comosition of the typical consumer;s "basket" of good.(4)Every month,collect data on price of all item in the basket;compute cost of basket.(5)CPI in any month equals

100 * COST OF BASKET IN THAT MONTH / COST OF BASKET IN BASE PERIOD
GDB DEFLATOR:The GDB deflator,also called the implicit price for GDB,measures the price of output relative to its price in the base year.

GDB=(NOMINAL GDB / REAL GDB)*100

MGT411 Assignment # 2 Solution

MGT411 Assignment # 2 Solution:

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MGT411 GDB # 2 Solution

MGT411 GDB # 2 Solution:
“It is always claimed by the commercial banks in the economy that their “Net-Worth” fall sharply when Central bank adopt the contraction monetary policy in the periods of high inflation in the economy. What do you think is this right or wrong? Give comments in its favor or against.”
Answer:
In my point of view this statement is right.

Contractionary monetary policy is monetary policy that seeks to reduce the size of the money supply.
Net worth is the total assets minus total outside liabilities of bank.
when the central bank is "tightening", it slows the process of private bank issue by selling securities on the open market and pulling money (that could be loaned) out of the private banking sector. By increasing the supply of bonds, this lowers their prices and raises interest rates at the same time that the money supply is reduced.
so when Central bank adopt the contraction monetary policy in the periods of high inflation in the economy, the prices are lowers and interest rates are increase Due to it net worth fall or decrease.

MGT411 Quiz

MGT411 Solved MCQ,s

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MGT411 Quiz

Money And Banking MGT411
MC090203685 : Sheraz Asif Quiz Start Time: 10:32 AM
Time Left
83 sec(s)
Question # 1 of 20 ( Start time: 10:32:27 AM )
Total Marks: 1
There is no guarantee that a bond issuer will make the promised payments is known as which one of the following?
Select correct option:

Default risk
Inflation risk
Interest rate risk
Systematic risk

MC090203685 : Sheraz Asif Quiz Start Time: 10:32 AM
Time Left
82 sec(s)
Question # 3 of 20 ( Start time: 10:33:42 AM )
Total Marks: 1
Which one of the following is the narrowest definition of money?
Select correct option:

C
M1
M2
M3

MC090203685 : Sheraz Asif Quiz Start Time: 10:32 AM
Time Left
81 sec(s)
Question # 4 of 20 ( Start time: 10:33:59 AM )
Total Marks: 1
Which of the following is NOT an example of financial institutions?
Select correct option:

Banks
Securities firms
Stock exchanges
Insurance companies

MC090203685 : Sheraz Asif Quiz Start Time: 10:32 AM
Time Left
86 sec(s)
Question # 5 of 20 ( Start time: 10:35:20 AM )
Total Marks: 1
__________ is the interest rate at which the present value annual reveneu equals the cost of the investment.
Select correct option:

Fixed rate of interest
Internal rate of return
Variable rate of interest
Nominal rate of interest

MC090203685 : Sheraz Asif Quiz Start Time: 10:32 AM
Time Left
87 sec(s)
Question # 6 of 20 ( Start time: 10:36:05 AM )
Total Marks: 1
Which one of the following is the procedure of finding out the Present Value (PV)?
Select correct option:

Discounting
Compounding
Time value of money
Bond pricing



MC090203685 : Sheraz Asif Quiz Start Time: 10:32 AM
Time Left
87 sec(s)
Question # 7 of 20 ( Start time: 10:36:24 AM )
Total Marks: 1
___________ is the value today of a payment that is promised to be made in the future.
Select correct option:

Future value
Present value
Agreed value
None of the given options

MC090203685 : Sheraz Asif Quiz Start Time: 10:32 AM
Time Left
87 sec(s)
Question # 8 of 20 ( Start time: 10:37:23 AM )
Total Marks: 1
What is true relationship between return and risk?
Select correct option:

Lower the risk greater the return
Greater the risk greater the return
Greater the risk the return will remain constant
No relationship between them

MC090203685 : Sheraz Asif Quiz Start Time: 10:32 AM
Time Left
87 sec(s)
Question # 9 of 20 ( Start time: 10:38:44 AM )
Total Marks: 1
Which of the following best expresses the proceeds a lender receives from a simple loan?
Select correct option:

PV(1 + i)
FV/i
PV + i
PV/i

MC090203685 : Sheraz Asif Quiz Start Time: 10:32 AM
Time Left
87 sec(s)
Question # 10 of 20 ( Start time: 10:39:27 AM )
Total Marks: 1
Home loans and car loans are the example of which one of the following?
Select correct option:

Mortgage loans
Pledge
Fixed Payment Loans
Ordinary loan

MC090203685 : Sheraz Asif Quiz Start Time: 10:32 AM
Time Left
88 sec(s)
Question # 11 of 20 ( Start time: 10:39:47 AM )
Total Marks: 1
If YTM is less than the coupon rate the price of the bond is __________.
Select correct option:

Greater than its face value
Lower than its face value
Equals to its face value
All of the given options

MC090203685 : Sheraz Asif Quiz Start Time: 10:32 AM
Time Left
87 sec(s)
Question # 12 of 20 ( Start time: 10:40:36 AM )
Total Marks: 1
Which of the following best expresses the payment a lender receives for lending their money for four years?
Select correct option:

PV(1+i)4
PV/(1 + i)4
4PV
PV/(1 - i)4

MC090203685 : Sheraz Asif Quiz Start Time: 10:32 AM
Time Left
88 sec(s)
Question # 13 of 20 ( Start time: 10:41:04 AM )
Total Marks: 1
Core principles of Money and Banking include each of the following except?
Select correct option:

People act rationally
Time has value
Information is the basis for decisions
Risk requires compensation

MC090203685 : Sheraz Asif Quiz Start Time: 10:32 AM
Time Left
88 sec(s)
Question # 14 of 20 ( Start time: 10:41:27 AM )
Total Marks: 1
Financial system promotes economic efficency by facilitating payments in which of the following way?
Select correct option:

Cash transactions
Checking accounts
Credit cards
All of the given options

MC090203685 : Sheraz Asif Quiz Start Time: 10:32 AM
Time Left
88 sec(s)
Question # 15 of 20 ( Start time: 10:41:55 AM )
Total Marks: 1
A financial instrumnet in which a borrower obtains resources from a lender immediately in exchange for a promised set of payments in the future is called as ___________.
Select correct option:

Bond
Bank Loan
Home Mortgage
Futures Contract

MC090203685 : Sheraz Asif Quiz Start Time: 10:32 AM
Time Left
80 sec(s)
Question # 16 of 20 ( Start time: 10:42:28 AM )
Total Marks: 1
Which of the following are used to monitor and stabilize the economy?
Select correct option:

Stock exchanges
Commercial Banks
Central Banks
Financial institutions

MC090203685 : Sheraz Asif Quiz Start Time: 10:32 AM
Time Left
87 sec(s)
Question # 17 of 20 ( Start time: 10:43:51 AM )
Total Marks: 1
If bond’s rating is lower, what will be its price?
Select correct option:

Higher
Lower
Equal to
No change

MC090203685 : Sheraz Asif Quiz Start Time: 10:32 AM
Time Left
87 sec(s)
Question # 18 of 20 ( Start time: 10:45:08 AM )
Total Marks: 1
According to the rule of 72 for reasonable rates of return, the time it takes to __________ the money will be t =72/i%
Select correct option:

Doubles
Triples
halves
3/4

MC090203685 : Sheraz Asif Quiz Start Time: 10:32 AM
Time Left
86 sec(s)
Question # 19 of 20 ( Start time: 10:45:26 AM )
Total Marks: 1
A zero coupon bond:
Select correct option:

Does not pay any coupon payments because the issuer is in default
Pays coupons only once a year versus the usual twice a year
Promises a single future payment
Pays coupons only if the bond price is below face value

MC090203685 : Sheraz Asif Quiz Start Time: 10:32 AM
Time Left
86 sec(s)
Question # 19 of 20 ( Start time: 10:45:26 AM )
Total Marks: 1
A zero coupon bond:
Select correct option:

Does not pay any coupon payments because the issuer is in default
Pays coupons only once a year versus the usual twice a year
Promises a single future payment
Pays coupons only if the bond price is below face value

MGT411

Money and Banking (MGT411)
Assignment # 1

Question No 1:
Determine the future value of an investment of Rs.100 for 12 months at the following
Interest rates:
a- 5%
b- 1%

Solution:

First of all the formula of future value= FV = PV (1 + i)n
(a) 5%
Now we can put the value
FV= 100(1+5%)12
= 100(1+0.05)12
= 100(1.05)12
= 100 * 1.7959
= 179.5857
(b) 1%
FV=100(1+1%) 12
=100(1+0.01)12
=100(1.01)12
=100(1.1269)
=112.69

Question No 2:

Solution:
According to the data given below, calculate the GDP deflator and inflation rate.

Years
Nominal GDP
Real GDP
GDP deflator
Inflation rate
1997
60000
60000
100
n.a
1998
70100
65200
107.51533
1.07516
1999
81200
74600
108.848
1.01239


GDP deflator = (Nominal GDP/ Real GDP) x 100
Inflation Rate= Current year GDP deflator / Previous year GDP deflator


Question 3
a. Compute the expected value of a Rs.1000 investment both in dollars and as a percentage over the coming year. Answer:State of the Economy....Probability.....RETURN..............PayoffHigh Growth................ 0.3............. +30%............. [1000+ (1000x30%)] 1300Normal Growth.............. 0.4............... +12%............ [1000+ (1000x12%)] 1120Recession................... 0.2.............. -15%............... [1000+ (1000x-15%)] 850Given this we can construct the expected payoff from this investmentEXPECTED VALUE = EV = SUM OF (PROBABILITY X PAYOFF) =(1300x0.3) + (1120x0.4) + (850x0.2)EV = Rs.1008EXPECTED RETURN = 0.3(30%)+0.2(12%)+0.1(-15%) = 10.8%(b). Compute the standard deviation of the return as a percentage over the coming year. Answer: Here is the computation of the standard deviation for this investmentSD = √Sum of (Return – expected return )2 x Probability SD = √ 0.3(30-10.8%) 2+0.4(12-10.8%)2 +0.1(-15-10.8%)2= √ 0.3(368.64) +0.4(1.44)+0.2(665.64)= √ 110.592+0.576+133.128= √ 177.732SD= 15.6%c. If the risk-free rate of return is 7 percent, what is the risk premium for a stock-market investment? Answer: The risk premium is a return over the risk free rate that is brought on by the risk in the investment. In this example, all of the extra return is generated by risk so the risk premium isRisk Premium = Expected profit – Risk-free return =10.8% - 7%= 3.8%