Question # 1 (Marks 4) Determine the future value of an investment of Rs.100 for
ID: 1237935 • Letter: Q
Question
Question # 1 (Marks 4)
Determine the future value of an investment of Rs.100 for 12months at the following interest rates:
a- 5%
b- 1%
Question # 2 (Marks 6)
According to the data given below, calculate the GDPdeflator 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, normalgrowth, or recession. You expect the following stock-marketreturns 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 theexpected value of a Rs.1000 investment both in dollars and as apercentage over the coming year.
b. Compute thestandard deviation of the return as a percentage over the comingyear.
c. If therisk-free return is 7 percent, what is the risk premium for a stockmarket investment?
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
Explanation / Answer
Determine the future value of an investment of Rs.100 for 12months at the following interest rates: 12 months mean 1year so, one year is a- 5% Fv= 100 *(1+0.5) FV= 105b- 1% Fv= 100 *(1+0.1) FV= 101 Question # 2 (Marks 6) According to the data given below, calculate the GDP deflatorand inflation rate. Years Nominal GDP Real GDP GDP deflator Inflationrate 1997 Rs. 60,000 Rs. 60,000 100 n.a 1998 70,100 65,200 107.5 7.5% 1999 81,200 74,600 108.85 1.34%
Question # 3 (Marks 10) Assume that the economy can experience high growth,normal growth, or recession. You expect the following stock-market returns for thecoming year under these conditions: State of the Economy ProbabilityReturn 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 indollars and as a percentage over the coming year. EV = (1300 :2) + (1120 :7) + (850 :1) EV = $1129 We nd a expected value of $1129 or and expected profitof $129 which as a percentage of the initial investment is129/1000 = 12.9% b. Compute the standard deviation of the return as apercentage over the coming year. squre root of whole the SD SD =(1300 ?? 1129)^2 * 0.2) + ((1120 ?? 1129)^2* 0.7)+ ((850 ?? 1129)2 * 0.1) = 117.0 The standard deviation of the payos for thisinvestment is $117.0 or as a percentage of the initial investment is11.7%.
c. If the risk-free return is 7 percent, what is the riskpremium for a stock market investment? Risk Premium =12.9%-7%=5.9% interest rates: 12 months mean 1year so, one year is a- 5% Fv= 100 *(1+0.5) FV= 105
b- 1% Fv= 100 *(1+0.1) FV= 101 Fv= 100 *(1+0.1) FV= 101 Question # 2 (Marks 6) According to the data given below, calculate the GDP deflatorand inflation rate. Years Nominal GDP Real GDP GDP deflator Inflationrate 1997 Rs. 60,000 Rs. 60,000 100 n.a 1998 70,100 65,200 107.5 7.5% 1999 81,200 74,600 108.85 1.34%
Question # 3 (Marks 10) Assume that the economy can experience high growth,normal growth, or recession. You expect the following stock-market returns for thecoming year under these conditions: State of the Economy ProbabilityReturn 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 indollars and as a percentage over the coming year. EV = (1300 :2) + (1120 :7) + (850 :1) EV = $1129 We nd a expected value of $1129 or and expected profitof $129 which as a percentage of the initial investment is129/1000 = 12.9% b. Compute the standard deviation of the return as apercentage over the coming year. squre root of whole the SD SD =(1300 ?? 1129)^2 * 0.2) + ((1120 ?? 1129)^2* 0.7)+ ((850 ?? 1129)2 * 0.1) = 117.0 The standard deviation of the payos for thisinvestment is $117.0 or as a percentage of the initial investment is11.7%.
c. If the risk-free return is 7 percent, what is the riskpremium for a stock market investment? Risk Premium =12.9%-7%=5.9% Years Nominal GDP Real GDP GDP deflator Inflationrate 1997 Rs. 60,000 Rs. 60,000 100 n.a 1998 70,100 65,200 107.5 7.5% 1999 81,200 74,600 108.85 1.34%
Question # 3 (Marks 10) Assume that the economy can experience high growth,normal growth, or recession. You expect the following stock-market returns for thecoming year under these conditions: State of the Economy ProbabilityReturn 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 indollars and as a percentage over the coming year. EV = (1300 :2) + (1120 :7) + (850 :1) EV = $1129 We nd a expected value of $1129 or and expected profitof $129 which as a percentage of the initial investment is129/1000 = 12.9% b. Compute the standard deviation of the return as apercentage over the coming year. squre root of whole the SD SD =(1300 ?? 1129)^2 * 0.2) + ((1120 ?? 1129)^2* 0.7)+ ((850 ?? 1129)2 * 0.1) = 117.0 The standard deviation of the payos for thisinvestment is $117.0 or as a percentage of the initial investment is11.7%.
c. If the risk-free return is 7 percent, what is the riskpremium for a stock market investment? Risk Premium =12.9%-7%=5.9% Assume that the economy can experience high growth,normal growth, or recession. You expect the following stock-market returns for thecoming year under these conditions: State of the Economy ProbabilityReturn 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 indollars and as a percentage over the coming year. EV = (1300 :2) + (1120 :7) + (850 :1) EV = $1129 We nd a expected value of $1129 or and expected profitof $129 which as a percentage of the initial investment is129/1000 = 12.9% b. Compute the standard deviation of the return as apercentage over the coming year. squre root of whole the SD SD =(1300 ?? 1129)^2 * 0.2) + ((1120 ?? 1129)^2* 0.7)+ ((850 ?? 1129)2 * 0.1) = 117.0 The standard deviation of the payos for thisinvestment is $117.0 or as a percentage of the initial investment is11.7%.
c. If the risk-free return is 7 percent, what is the riskpremium for a stock market investment? Risk Premium =12.9%-7%=5.9% State of the Economy ProbabilityReturn 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 indollars and as a percentage over the coming year. EV = (1300 :2) + (1120 :7) + (850 :1) EV = $1129 We nd a expected value of $1129 or and expected profitof $129 which as a percentage of the initial investment is129/1000 = 12.9% EV = (1300 :2) + (1120 :7) + (850 :1) EV = $1129 We nd a expected value of $1129 or and expected profitof $129 which as a percentage of the initial investment is129/1000 = 12.9% We nd a expected value of $1129 or and expected profitof $129 which as a percentage of the initial investment is129/1000 = 12.9% b. Compute the standard deviation of the return as apercentage over the coming year. squre root of whole the SD SD =(1300 ?? 1129)^2 * 0.2) + ((1120 ?? 1129)^2* 0.7)+ ((850 ?? 1129)2 * 0.1) = 117.0 The standard deviation of the payos for thisinvestment is $117.0 or as a percentage of the initial investment is11.7%.
SD =(1300 ?? 1129)^2 * 0.2) + ((1120 ?? 1129)^2* 0.7)+ ((850 ?? 1129)2 * 0.1) = 117.0 The standard deviation of the payos for thisinvestment is $117.0 or as a percentage of the initial investment is11.7%.
The standard deviation of the payos for thisinvestment is $117.0 or as a percentage of the initial investment is11.7%.
c. If the risk-free return is 7 percent, what is the riskpremium for a stock market investment? Risk Premium =12.9%-7%=5.9%