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Question Details:
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?
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