Inflation is really a measure of: a) The size of the exponent in a future worth
ID: 2479377 • Letter: I
Question
Inflation is really a measure of: a) The size of the exponent in a future worth equation b) The blue book value of a depreciable asset c) The time it takes to recover an initial investment in equipment d) The change in the value of a country's currency 2) For a market interest rate of 12% per year and an inflation rate of 7% per year, the real interest rate per year is closest to: a) 4.7% b) 7% c) 12% d) 19.8% 3) An asset with a first cost of $50,000 is to be depreciated by the straight line method over a 5 year period. The asset will have annual operating costs of $35,000 and a salvage value of $10,000. According to the straight line method, the book value at the end of year 3 will be closest to: a) $8,000 b) $20,000 c) $24,000 d) $26,000 4) All of the following assets can be depreciated, except: a) A bulldozer b) A copper mine c) A surgical robot d) A conveyor belt 5) For a real interest rate of 18% per year and an inflation rate of 3% per year, the market interest rate per year is closets to: a) 20% b) 22% c) 24% d) 26%Explanation / Answer
1) Inflation is really a measure of : The change in the value of a country's currency option d is correct 2) Market interest rate 12% Less : Inflation rate 7% real interest rate 5% Hence option (a) is correct 3) First Cost 50000 Period 5 years Salvage Value 10000 Annual operating cost 35000 Depriciation pa SLM = ( 50000 - 10000) /5 = 8000 pa Depriciation for 3 years = 8000 * 3 = 24000 Book value after 3 years First cost 50000 Less : Depriciation for 3 years 24000 Book value after 3 years 26000 Hence option d is correct 4) A surgical robot cannot be depriciated hence option c is correct 5) Market interest rate = Real interest rate + inflation rate = 18% + 3% = 21% Hence option (a & b) is correct