Exam 19: Returns, Index Numbers, and Inflation

Consider the following data on the prices of three items, A, B, and C, from 2000 through 2002. Compute the unweighted price index for the three items for 2002, using 2000 as the base year.

Emily Myers purchased a share of company X at $700 one year ago and earned a dividend of $50 during the year. The share is trading now at $850. Calculate Emily's return from investment if she sells her share at $850.

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%.

Boris Arshavin invested $1 million in buying a house in 2002, and sold it for $2.5 million in 2005. The consumer price index for 2002 and 2005 were 180 and 210, respectively. Compute the real return Boris earned from selling the house.

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

Consider the following table that provides the prices for three different brands of chocolate-chip cookies during 2008 to 2009 in a particular country. (Prices are in the country's local currency.) a. Compute the unweighted aggregate price index for 2009, using 2008 as the base year. B) Interpret the result.

The following table provides the price and quantity data for three brands of a particular good during 2010 and 2011. a. Use 2010 as the base year and compute the weighted aggregate price index for 2011 using the Paasche method. B) Interpret the result.

The ________ component is the capital gain or loss resulting from an increase or decrease in the value of the asset.

Consider the following data on the prices of three items, A, B, and C, from 2000 through 2002. Compute the unweighted price index for the three items for 2000, using 2001 as the base year.

Consider the following table. It provides the price and quantity data for three brands of a good. a. Compute the weighted aggregate price index using the Laspeyres method with 2008 as the base year. B) Compute the weighted aggregate price index using the Paasche method with 2008 as the base year. C) Suppose the new price and quantity data was available for the base year of 2000 instead of 2008. Would this lead to a substantial difference between the two indices? Explain your answer.

The aggregate price index is used to represent relative price movements for a group of items.

Timothy Keating invested $120 in buying a share of company X in June last year. Although the company had announced that it will not pay any dividend, the price of this share has increased over the last few months and is expected to go up to $140 by June this year. If the expected annual inflation rate in June this year is 5%, calculate Timothy's real rate of return from this investment if he sells the share at $140.

Consider the following information about the price and the price index of a popular book over three years. If the price index in 2011 was 95, which of the following is the percent change in the price of the book between 2010 and 2011?

Toyota Motor Corp., once considered a company synonymous with reliability and customer satisfaction, has being engulfed in a perfect storm with millions of cars recalled. The following table shows the monthly adjusted close price per share of Toyota from October 2009 to March 2010. Which of the following is the percentage price change from October 2009 to December 2009?

Which of the following statements is true about the Laspeyres and Paasche indices?

Suppose the simple price index for a good was 112 in 2008, using 2007 as the base year. In 2009 however, the simple price index for the same good was 98. A) What does this information imply? B) If the price of the good was $20 in 2008, what was the price in 2009?

Amy Peterson's annual salary when she started working in 2006 was $35,000. In 2011, her annual salary had increased to $44,000. Using 2006 as the base year, the consumer price index for 2011 was computed to be 112. Use this information to determine if Amy was better off in 2006 or in 2011.

Lindsay Kelly bought 100 shares of Google, 300 shares of Microsoft, and 500 shares of Nokia in January 2005. The adjusted close prices of these stocks over the next three years are shown in the accompanying table. Which of the following is the unweighted aggregate price index for Lindsay's portfolio for 2007, using 2005 as the base year?

The following table provides the price and quantity data for three brands of a particular good during 2010 and 2011. a. Use 2010 as the base year and compute the weighted aggregate price index for 2011 using the Laspeyres method. B)Interpret the result.

If the year 2000 is used as a base year and the value of the price index in 2001 is 105, it implies that there was a 5% increase in the price level in 2001.