Question 1

In general, inflation is defined as

Accepted Answer

A) the increase in Gross Domestic Product over time. 
B) a measure of the average person's preference for a present good compared to a future good. 
C) an increase in prices of goods and services that are included in a consumption basket over time. 
D) an increase in the purchasing power of money over time. 
E) the difference between the real and nominal Gross Domestic Product (GDP). 
A) the increase in Gross Domestic Product over time. 
B) a measure of the average person's preference for a present good compared to a future good. 
C) an increase in prices of goods and services that are included in a consumption basket over time. 
D) an increase in the purchasing power of money over time. 
E) the difference between the real and nominal Gross Domestic Product (GDP).

Question 2

If Trevor uses the real MARR and determines cash flows in actual dollars then he

Accepted Answer

A) cannot estimate the profitability of investments. 
B) estimates the profitability of investments incorrectly. 
C) estimates the profitability of investments correctly. 
D) overestimates the profitability of investments. 
E) underestimates the profitability of investments. 
A) cannot estimate the profitability of investments. 
B) estimates the profitability of investments incorrectly. 
C) estimates the profitability of investments correctly. 
D) overestimates the profitability of investments. 
E) underestimates the profitability of investments.

Question 3

Suppose that an economy is producing only two goods-a consumption good C and an investment good I. Using the following data:
   Calculate the CPI in 2000 and 2004 with 1990 as the base year.

Accepted Answer

It is necessary to define the cost of ba

Question 4

Mary graduated from a college in 2004 and she wanted to go on a sea cruise the same year. However, she could not afford it at that time because of the high price of $2 550. Today she can afford it, however, the cruise price is $2 870 now. If the price of the cruise in real dollars has not changed and the inflation rate has been 3.0% since 2004, what year is it now?

Accepted Answer

A) 2007 
B) 2008 
C) 2009 
D) 2010 
E) 2011 
A) 2007 
B) 2008 
C) 2009 
D) 2010 
E) 2011

Question 5

John's annual income in 2002 was $52 000. Now in 2011 John earns $63 000 per year. The CPI was 96 in 2002 and is 115 now. In real terms, is John better off now than he was in 2002?

Accepted Answer

We can compare the two values of John's

Question 6

I am promised a payment of $250 a year from now, repeating every year for a total of ten years. I can invest money at 10% interest, but the inflation rate over the next ten years is expected to be 5%. What is the smallest amount of money you could offer me right now that would persuade me to give up these payments?

Accepted Answer

A) 250(P/A,0.05,10) 
B) 250(P/A,0.15,10) 
C) 250(A/P,0.1,10) 
D) 250(P/A,0.155,10) 
E) 250(P/A,0.165,10) 
A) 250(P/A,0.05,10) 
B) 250(P/A,0.15,10) 
C) 250(A/P,0.1,10) 
D) 250(P/A,0.155,10) 
E) 250(P/A,0.165,10)

Question 7

Suppose that the CPI was 105 on Jan 1, 2008 and 117 on Jan 1, 2011. What was the average annual inflation over the intervening period?

Accepted Answer

A) 4.00% 
B) 3.97% 
C) 3.87% 
D) 3.77% 
E) 3.67% 
A) 4.00% 
B) 3.97% 
C) 3.87% 
D) 3.77% 
E) 3.67%

Question 8

Canada's government savings bonds pay 3% annual real rate of return compounded daily. Professor John Jones invests $40 bi-weekly as a part of his University payroll program. If the inflation rate is assumed to be 2% per year over the next 10 years, what is the purchasing power of the professor's bonds 10 years from now?

Accepted Answer

First, it is necessary to calculate actu

Question 9

Suppose that you need to accumulate $10 000 in three years in today's dollars. What monthly amount in nominal (actual)dollars should you save if your real rate of return is 5% and expected annual inflation rate is 3%?

Accepted Answer

A) $246.14 
B) $258.04 
C) $268.96 
D) $275.14 
E) $281.96 
A) $246.14 
B) $258.04 
C) $268.96 
D) $275.14 
E) $281.96

Question 10

What should be done when the price of one good or service changes differently from the average price of other goods and services associated with a project?

Accepted Answer

A) Incorporate the price change directly into the cash flows of the project. 
B) Incorporate the price change into the real MARR of the project. 
C) Assume that the price change is the same for all goods and services of the project. 
D) Use two different MARRs for different goods and services of the project. 
E) Find the average price change for all goods and services of the project. 
A) Incorporate the price change directly into the cash flows of the project. 
B) Incorporate the price change into the real MARR of the project. 
C) Assume that the price change is the same for all goods and services of the project. 
D) Use two different MARRs for different goods and services of the project. 
E) Find the average price change for all goods and services of the project.

Question 11

Suppose that the CPI was 87.5% in 2000 and 132.2% in 2009. What is the value of $50 000 in 2009 in terms of 2000 dollars?

Accepted Answer

A) $66 100 
B) 57 143 
C) $43 750 
D) $37 821 
E) $33 094 
A) $66 100 
B) 57 143 
C) $43 750 
D) $37 821 
E) $33 094

Question 12

A painting cost $1 million in 1980. Now in 2011 its price is $5 million. Assuming average annual inflation of 4% over this period, has the painting increased/decreased in value and by how much?

Accepted Answer

Current value of $5 million in

Question 13

A bank offers me 10% annual interest on an investment, but the inflation rate is 5%. What is the real interest rate?

Accepted Answer

A) 2% 
B) 4.76% 
C) 5% 
D) 15% 
E) 15.5% 
A) 2% 
B) 4.76% 
C) 5% 
D) 15% 
E) 15.5%

Question 14

A typical consumption basket for 2010 and 2011 is as follows:   Suppose that 2010 is the base year. What is the CPI for 2011?

Accepted Answer

A) 93.6 
B) 106.8 
C) 107.9 
D) 108.2 
E) 111.3 
A) 93.6 
B) 106.8 
C) 107.9 
D) 108.2 
E) 111.3

Question 15

The price of a TV set was $600 in 1999. In 2003 it was priced at $520. If the CPI in 1999 was 123 and 2003 is the base year, has the TV set become cheaper or more expensive in real terms in 2003?

Accepted Answer

A) Real-dollar cost of the TV set has not changed. 
B) Real-dollar cost of the TV set has increased by 6.6%. 
C) Real-dollar cost of the TV set has decreased by 6.6%. 
D) Real-dollar cost of the TV set has decreased by 15.8%. 
E) Real-dollar cost of the TV set has increased by 15.8%. 
A) Real-dollar cost of the TV set has not changed. 
B) Real-dollar cost of the TV set has increased by 6.6%. 
C) Real-dollar cost of the TV set has decreased by 6.6%. 
D) Real-dollar cost of the TV set has decreased by 15.8%. 
E) Real-dollar cost of the TV set has increased by 15.8%.

Question 16

Data from the International Monetary Fund are as follows:   where CPI = Consumer Price Index INF = Inflation Rate
UEM = Unemployment Rate
What is the base year in this case?

Accepted Answer

A) 1984 
B) 1985 
C) 1995 
D) 1990 
E) 1998 
A) 1984 
B) 1985 
C) 1995 
D) 1990 
E) 1998

Question 17

ROVNO Ltd. just invested $50 000 into a new local network. Services provided by the network will bring $15 000 per year in the next five years. The following information is given:
- real MARR = 10%
- expected annual inflation = 2%
- the network will be sold for salvage after five years; its depreciation rate is 20%
Is this a good investment in terms of the internal rate of return?

Accepted Answer

First, it is necessary to calculate the

Question 18

A company invested $3.5 million in a five-year project. It assessed that this project would generate $4.4 million revenue by the end of a five-year period in terms of today's dollars. If inflation is expected to be 3.0% per year over that period, what is the current IRR?

Accepted Answer

A) 4.7% 
B) 5.7% 
C) 6.8% 
D) 7.8% 
E) 8.7% 
A) 4.7% 
B) 5.7% 
C) 6.8% 
D) 7.8% 
E) 8.7%

Question 19

John borrowed $5 000 from a commercial bank for 4 years to pay his tuition fee. Calculate the interest owed on this loan after 4 years in real dollars if the bank charges 5% annual (actual)interest rate and annual inflation is 2%.

Accepted Answer

5% charged by the bank is actual (nomina

Question 20

How is the consumer price index calculated and what does it show?

Accepted Answer

The consumer price index (CPI)for a give

In general, inflation is defined as

If Trevor uses the real MARR and determines cash flows in actual dollars then he

Suppose that an economy is producing only two goods-a consumption good C and an investment good I. Using the following data: Calculate the CPI in 2000 and 2004 with 1990 as the base year.

John's annual income in 2002 was $52 000. Now in 2011 John earns $63 000 per year. The CPI was 96 in 2002 and is 115 now. In real terms, is John better off now than he was in 2002?

Suppose that the CPI was 105 on Jan 1, 2008 and 117 on Jan 1, 2011. What was the average annual inflation over the intervening period?

Suppose that you need to accumulate $10 000 in three years in today's dollars. What monthly amount in nominal (actual)dollars should you save if your real rate of return is 5% and expected annual inflation rate is 3%?

What should be done when the price of one good or service changes differently from the average price of other goods and services associated with a project?

Suppose that the CPI was 87.5% in 2000 and 132.2% in 2009. What is the value of $50 000 in 2009 in terms of 2000 dollars?

A painting cost $1 million in 1980. Now in 2011 its price is $5 million. Assuming average annual inflation of 4% over this period, has the painting increased/decreased in value and by how much?

A bank offers me 10% annual interest on an investment, but the inflation rate is 5%. What is the real interest rate?

A typical consumption basket for 2010 and 2011 is as follows: Suppose that 2010 is the base year. What is the CPI for 2011?

The price of a TV set was $600 in 1999. In 2003 it was priced at $520. If the CPI in 1999 was 123 and 2003 is the base year, has the TV set become cheaper or more expensive in real terms in 2003?

Data from the International Monetary Fund are as follows: where CPI = Consumer Price Index INF = Inflation Rate UEM = Unemployment Rate What is the base year in this case?

A company invested $3.5 million in a five-year project. It assessed that this project would generate $4.4 million revenue by the end of a five-year period in terms of today's dollars. If inflation is expected to be 3.0% per year over that period, what is the current IRR?

John borrowed $5 000 from a commercial bank for 4 years to pay his tuition fee. Calculate the interest owed on this loan after 4 years in real dollars if the bank charges 5% annual (actual)interest rate and annual inflation is 2%.

How is the consumer price index calculated and what does it show?

Engineering Decision Making

Time Value of Money

Cash Flow Analysis

Comparison Methods: Part I

Comparison Methods: Part Ii

Financial Accounting and Business Plans

Replacement Decisions

Taxes

Public Sector Decision Making

Project Management

Dealing With Uncertainty and Risk

Filters

Exam 9: Inflation

In general, inflation is defined as

If Trevor uses the real MARR and determines cash flows in actual dollars then he

Suppose that an economy is producing only two goods-a consumption good C and an investment good I. Using the following data: Calculate the CPI in 2000 and 2004 with 1990 as the base year.

John's annual income in 2002 was $52 000. Now in 2011 John earns $63 000 per year. The CPI was 96 in 2002 and is 115 now. In real terms, is John better off now than he was in 2002?

Suppose that the CPI was 105 on Jan 1, 2008 and 117 on Jan 1, 2011. What was the average annual inflation over the intervening period?

Suppose that you need to accumulate $10 000 in three years in today's dollars. What monthly amount in nominal (actual)dollars should you save if your real rate of return is 5% and expected annual inflation rate is 3%?

What should be done when the price of one good or service changes differently from the average price of other goods and services associated with a project?

Suppose that the CPI was 87.5% in 2000 and 132.2% in 2009. What is the value of $50 000 in 2009 in terms of 2000 dollars?

A painting cost $1 million in 1980. Now in 2011 its price is $5 million. Assuming average annual inflation of 4% over this period, has the painting increased/decreased in value and by how much?

A bank offers me 10% annual interest on an investment, but the inflation rate is 5%. What is the real interest rate?

A typical consumption basket for 2010 and 2011 is as follows: Suppose that 2010 is the base year. What is the CPI for 2011?

The price of a TV set was $600 in 1999. In 2003 it was priced at $520. If the CPI in 1999 was 123 and 2003 is the base year, has the TV set become cheaper or more expensive in real terms in 2003?

Data from the International Monetary Fund are as follows: where CPI = Consumer Price Index INF = Inflation Rate UEM = Unemployment Rate What is the base year in this case?

A company invested $3.5 million in a five-year project. It assessed that this project would generate $4.4 million revenue by the end of a five-year period in terms of today's dollars. If inflation is expected to be 3.0% per year over that period, what is the current IRR?

John borrowed $5 000 from a commercial bank for 4 years to pay his tuition fee. Calculate the interest owed on this loan after 4 years in real dollars if the bank charges 5% annual (actual)interest rate and annual inflation is 2%.

How is the consumer price index calculated and what does it show?

Engineering Decision Making

Time Value of Money

Cash Flow Analysis

Comparison Methods: Part I

Comparison Methods: Part Ii

Financial Accounting and Business Plans

Replacement Decisions

Taxes

Public Sector Decision Making

Project Management

Dealing With Uncertainty and Risk

Filters