Question 1

Joanna Williams purchased a one-year Treasury bill at $100.This bond does not have any coupon payment but Joanna will get $105 at maturity.The inflation rate in a year's time is expected to be 1.3%.
A)What is the income yield from this investment?
B)What is the nominal rate of return from this investment?
C)What is the real rate of return from this investment?

Accepted Answer

The answer of Joanna Williams purchased a one-year Treasury bill...

Question 2

Using 2008 as the base year,the simple price index for an algebra book in 2009 was computed to be 105.If the price of the book was $50 in 2009,compute the price in the base year.

Accepted Answer

The answer of Using 2008 as the base year,the simple...

Question 3

Jake Morris invested $150 in buying a share of ABC Corp. ,a year back,on which he received a dividend of $20.Now when the share is trading at a different price,Jake computes his investment return to be 10%.
A)Compute Jake's income yield from this investment.
B)What is the current price of the share?
C)Interpret the result.

Accepted Answer

The answer of Jake Morris invested $150 in buying a...

Question 4

Nicole Watson purchased a share of McAllister Inc. ,a year back when it was trading at $75.She also earned a dividend of $4 on this.The price of the same share has now increased to $87.
A)Compute the annual capital gain from this share.
B)Compute the annual income yield from this share.

Accepted Answer

The answer of Nicole Watson purchased a share of McAllister...

Question 5

The following table provides the adjusted close prices of the shares of firm X for three consecutive months of the last year.  a.Compute the monthly return for May.
B)Compute the monthly return for June.

Accepted Answer

The answer of The following table provides the adjusted close...

Question 6

Gulten started her career with an annual salary of $82,000 in 2006.Five years later,in 2011,her salary had increased to $85,000 a year.If the values of the CPI (with a base of 1982-1984)for 2006 and 2011 are 201.6 and 224.9,respectively,compute the increase in Gulten's real income.
A)-7.08 percent
B)3.66 percent
C)15.68 percent
D)92.92 percent

Accepted Answer

To calculate the increase in Gulten's real income, we need to adjust her nominal income for inflation. We can use the following formula:
Real income = Nominal income / CPI * 100

For 2006:
Real income = 82,000 / 201.6 * 100 = 40,685.71

For 2011:
Real income = 85,000 / 224.9 * 100 = 37,833.26

The increase in Gulten's real income is calculated as:
(Real income in 2011 - Real income in 2006) / Real income in 2006 * 100

= (37,833.26 - 40,685.71) / 40,685.71 * 100

= -7.08%

Therefore, the best choice is A) -7.08 percent.

Question 7

Rita Jacob purchased a corporate bond at $650 a year ago.The price of the bond has now increased to $665.
A)What is Rita's capital gains yield from this investment?
B)If her investment return is 7 percent,what coupon payment must she have received?

Accepted Answer

The answer of Rita Jacob purchased a corporate bond at...

Question 8

Exhibit 19-7.The following table shows the value of CPI for three years in a country.  Refer to Exhibit 19-7.What is the annual inflation rate for 2005?
A)1.46%
B)3.36%
C)4.87%
D)1.8%

Accepted Answer

The answer of Exhibit 19-7.The following table shows the value...

Question 9

Which of the following correctly identifies the expression for calculating the inflation rate for period t,based on the CPI?
A) 
B) 
C) 
D)

Accepted Answer

The answer of Which of the following correctly identifies the...

Question 10

Exhibit 19-7.The following table shows the value of CPI for three years in a country.  Refer to Exhibit 19-7.Compute the annual inflation rate for 2004.
A)4%
B)1.46%
C)3.36%
D)4.87%

Accepted Answer

The answer of Exhibit 19-7.The following table shows the value...

Question 11

Almas Mohammed paid $50 for a stock of Jones Inc. ,and expects to earn an annual dividend of $5.If the price of the stock increases to $55 in a year's time,compute the real rates of return from this investment if:
A)the expected inflation rate a year from now is 1.25%.
B)the expected inflation rate a year from now is 3%.

Accepted Answer

The answer of Almas Mohammed paid $50 for a stock...

Question 12

Katie Jones started her career with an annual salary of $30,000 in 2006.Five years later,in 2011,her salary had increased to $55,000 a year.If the values of the CPI (with a base of 1982-1984)for 2006 and 2011 are 201.6 and 224.9,respectively,compute the increase in Katie's real income.
A)64.34%
B)83.33%
C)105.31%
D)164.34%

Accepted Answer

To calculate the increase in Katie's real income, we first adjust her salaries to a common dollar value using the CPI for both years. The formula for adjusting to real income is: Real Income = (Nominal Income / CPI of the year) * CPI of the base year. For 2006: Real Income = ($30,000 / 201.6) * 100 = $14,880.95 (approx.)For 2011: Real Income = ($55,000 / 224.9) * 100 = $24,455.53 (approx.)The increase in real income = $24,455.53 - $14,880.95 = $9,574.58.To find the percentage increase: ($9,574.58 / $14,880.95) * 100 = 64.34% (approx.).

Question 13

Which of the following statements is true of the Consumer Price Index (CPI)?
A)It uses the same basket of goods and services as the Producer Price Index.
B)The quantities of items in the current year are used for computing the weights for the index.
C)It is an unweighted price index used to measure inflation.
D)It is based on the prices paid by urban consumers for a representative basket of goods and services.

Accepted Answer

The Consumer Price Index (CPI) is based on the prices paid by urban consumers for a representative basket of goods and services, making option D the correct choice. Option A is incorrect as the Consumer Price Index and Producer Price Index use different baskets of goods and services. Option B is incorrect as the quantities of items in the base year are used for computing the weights for the index, not the current year. Option C is also incorrect as the CPI is a weighted index that measures the average change over time in the prices paid by urban consumers for a basket of consumer goods and services.

Question 14

The real return from investing $100 in a stock for a year is computed to be 2%.If the nominal return from this investment is 3.5%,what is the expected inflation rate?

Accepted Answer

The answer of The real return from investing $100 in...

Question 15

The income yield from a one-year infrastructure bond purchased today is 0.5%.Compute the real return from this bond if the inflation rate a year later is expected to be 4% and the capital gains yield is zero.

Accepted Answer

The answer of The income yield from a one-year infrastructure...

Question 16

Jones Inc. ,a company manufacturing drills,earned a revenue of $5 million in 2011.This was 6% more than their revenue in 2009.The CPI for 2009 and 2011 was 115 and 122 respectively,while the PPI for 2009 and 2011 was 110 and 114 respectively.Which of the following accurately reflects the real growth in revenues between 2009 and 2011?
A)6%
B)2.65%
C)0.28%
D)10.25%

Accepted Answer

To calculate the real growth in revenue, we need to adjust for inflation.
Real growth in revenue = [(Nominal growth in revenue) / (1 + CPI in 2011 / 100)] x 100
Nominal growth in revenue = 6%
Real growth in revenue = [(6 / (1 + 122/100)) x 100] - [(0 / (1 + 115/100)) x 100]
Real growth in revenue = 2.65% (rounded to two decimal places)
Therefore, the correct answer is option B.

Question 17

Tammy Welsh has two investment options to choose from.The stocks of both ABC Inc. ,and XYZ Corp. ,are currently trading at $200.ABC Inc. ,is paying a dividend of $10,and is expected to trade at $215 in a year's time.XYZ Corp. ,is paying a higher dividend of $25.However,the price of XYZ's stock is only expected to go up to $203 a year from now.Experts are estimating inflation to be about 2% in a year's time.
A)Which stock should Tammy invest in and why?
B)If the expected inflation rate was revised to 2.5%,would it alter Tammy's choice? Explain your answer.

Accepted Answer

The answer of Tammy Welsh has two investment options to...

Question 18

Suppose the price of a slice of pizza increased from $2 in 2009 to $2.25 in 2010,and then to $3 in 2011.
A)Compute the percentage change in the price of a slice of pizza between 2009 and 2011.
B)Compute the simple price index for 2011 if 2009 is the base year.
C)Compute the simple price index for 2009 if 2010 is the base year.

Accepted Answer

The answer of Suppose the price of a slice of...

Question 19

Rhea Anderson purchased a corporate bond at $500 a year ago,on which she received a coupon payment of $35.The price of the bond has now gone up to $525.
A)Compute Rhea's capital gains yield.
B)Compute Rhea's income yield.
C)Compute Rhea's investment return.

Accepted Answer

The answer of Rhea Anderson purchased a corporate bond at...

Question 20

Which of the following is true about the comparison between the CPI and the PPI?
A)Both indices are based on the same basket of goods and services.
B)Sales and excise taxes are included in the PPI,but they are not included in the CPI.
C)The PPI is more commonly used to adjust wages for changes in the cost of living than the CPI.
D)Unlike the CPI that uses prices people pay,the PPI uses the prices measured at the wholesale level.

Accepted Answer

Unlike the CPI which uses prices people pay, the PPI uses the prices measured at the wholesale level.

Quiz 19: Returns, Index Numbers and Inflation

Using 2008 as the base year,the simple price index for an algebra book in 2009 was computed to be 105.If the price of the book was $50 in 2009,compute the price in the base year.

Nicole Watson purchased a share of McAllister Inc. ,a year back when it was trading at $75.She also earned a dividend of $4 on this.The price of the same share has now increased to $87. A)Compute the annual capital gain from this share. B)Compute the annual income yield from this share.

The following table provides the adjusted close prices of the shares of firm X for three consecutive months of the last year. a.Compute the monthly return for May. B)Compute the monthly return for June.

Gulten started her career with an annual salary of $82,000 in 2006.Five years later,in 2011,her salary had increased to $85,000 a year.If the values of the CPI (with a base of 1982-1984) for 2006 and 2011 are 201.6 and 224.9,respectively,compute the increase in Gulten's real income.

Rita Jacob purchased a corporate bond at $650 a year ago.The price of the bond has now increased to $665. A)What is Rita's capital gains yield from this investment? B)If her investment return is 7 percent,what coupon payment must she have received?

Exhibit 19-7.The following table shows the value of CPI for three years in a country. Refer to Exhibit 19-7.What is the annual inflation rate for 2005?

Which of the following correctly identifies the expression for calculating the inflation rate for period t,based on the CPI?

Exhibit 19-7.The following table shows the value of CPI for three years in a country. Refer to Exhibit 19-7.Compute the annual inflation rate for 2004.

Katie Jones started her career with an annual salary of $30,000 in 2006.Five years later,in 2011,her salary had increased to $55,000 a year.If the values of the CPI (with a base of 1982-1984) for 2006 and 2011 are 201.6 and 224.9,respectively,compute the increase in Katie's real income.

Which of the following statements is true of the Consumer Price Index (CPI) ?

The real return from investing $100 in a stock for a year is computed to be 2%.If the nominal return from this investment is 3.5%,what is the expected inflation rate?

The income yield from a one-year infrastructure bond purchased today is 0.5%.Compute the real return from this bond if the inflation rate a year later is expected to be 4% and the capital gains yield is zero.

Rhea Anderson purchased a corporate bond at $500 a year ago,on which she received a coupon payment of $35.The price of the bond has now gone up to $525. A)Compute Rhea's capital gains yield. B)Compute Rhea's income yield. C)Compute Rhea's investment return.

Which of the following is true about the comparison between the CPI and the PPI?