Money & Banking (Mgt 411) Assignment Solution.

Semester “Spring 2010”

“Money & Banking (Mgt 411)”

Assignment No. 1 Marks: 20

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

?

?

2007

2300

?

?

2008

2850

?

?

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

?

?

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

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)

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.

Semester “Spring 2010”

“Money & Banking (Mgt 411)” Assignment No. 1 Marks: 20

Question 01 Part A Calculate consumer price index and inflation rate by using following data. (Marks 4)

Solution.

Year	Cost of Basket	CPI	Inflation Rate
2006	2000	=2000/2000*100=100	n.a
2007	2300	=2300/2000*100=115	=115-100/100*100=15%
2008	2850	=2850/2000*100=142.5	=142.5-115/115*100=23.91%

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

Solution.

Years	Nominal GDP	Real GDP	GDP Deflator	Inflation Rate.
2006	78,000	78,000	=78000/78000*100=100	n.a
2007	82,000	80,000	=82000/80000*100=102.5	=102.5-100/100=2.5%
2008	89,000	85,000	=89000/85000*100=104.7	=104.7-102.5/102.5*100=2.15%

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

Solution.

M1:

· Euro dollars • Current account balances in Pakistan • ATM cards balances in Pakistan

M2:

· Banks Saving accounts in Pakistan • Individual money market mutual fund • Institutional money market mutual fund share

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)

Given Data.

(Compounded Quarterly)

P.V=100,000

I=5%=5/100/4=0.0125%

n=10years=10*4= 40

FV=?

Formula>

F.V=P.V* (1+ i) ^n

=100,000*(1+0.0125) ^40

=100,000*1.6436

F.V=164,361ans

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)

Given Data.

(Compounded semi-annually)

F.V=200,000

I=6%=5/100/2=0.03%

n=5years=5*2= 10

P.V=?

F.V=P.V* (1+ i) ^n

200,000=P.V*(1+0.03) ^10

P.V=200,000/1.3439

P.v=148,818.78ans.