Question 01 Part A Calculate consumer price index and inflation rate by using following data. (Marks 4) Years Cost of Basket CPI Inflation Rate 2006 2000 100 n.a

2007

2300

2008

2850

115 142.5

15% 23.91%

Part B Calculate GDP deflator and inflation rate by using following data. (Marks 4) Years

Nominal GDP

Real GDP

GDP deflator

Inflation rate

2006

78000

78000

2007

82000

80000

2008

89000

85000

100.0 102.5 104.7

n.a. 2.5% 2.146%

Part C Which of the following accounts will include in M1 & M2? Identify separately. (Marks 2) • Euro dollars • Current account balances in Pakistan • ATM cards balances in Pakistan • Banks Saving accounts in Pakistan • Individual money market mutual fund • Institutional money market mutual fund share

M1: • Euro dollars • Current account balances in Pakistan • ATM cards balances in Pakistan M2: • Individual money market mutual fund • Banks saving accounts in Pakistan • Institutional money market mutual fund share

This Solution Is Made By: Hafiz Salman Majeed

Question 02 Part A An investor deposits Rs.100,000 today in a bank and bank offers 5% interest rate per annum compounded quarterly. What will be the amount after 10 years? (Marks 5)

Compound Interest Formula S = Money accrued after n years also called compound amount=? P = Principal = 100000 r = Rate of interest = 5% n = Number of periods = 10 years Compounded Quarterly r /100   S = P × 1 + ( ) 4  

n× 4

10× 4

5 /100   S = 100000 ×  1 + ( ) 4   0.05   S = 100000 ×  1 + ( ) 4   S = 100000 × (1 + 0.0125 ) S = 100000 × (1.0125 )

40

40

40

S = 100000 × 1.643619463 S = 164,361.9463

Part B A student needs Rs 200,000 after 5 year for his study. What amount he has to deposit in a bank today so that he will have Rs 200,000 after 5 years if bank offers yearly 6% interest rate compounded semi-annually. (Marks 5)

Solution:

This Solution Is Made By: Hafiz Salman Majeed

Compound Interest Formula S = Money accrued after n years also called compound amount= 200000 P = Principal = ? r = Rate of interest = 6% n = Number of periods = 5 years Compounded Semi annually r /100   S = P × 1 + ( ) 2  

n× 2

6 /100   200000 = P ×  1 + ( ) 2  

5×2

10

0.06   200000 = P ×  1 + ( ) 2  

10

200000 = P × (1 + (0.03) ) 10

200000 = P × (1.03) P=

200000 10

(1.03)

P = 148818.78

This Solution Is Made By: Hafiz Salman Majeed