Question 1

Because both the Laspeyres and Paasche indices are weighted aggregate price indices, they will yield the same value for a given evaluation period.

Accepted Answer

A) True 
 B)False

Question 2

The Consumer Price Index (CPI) and the Producer Price Index (PPI) must always move in sync with each other.

Accepted Answer

A) True 
 B)False

Question 3

Suppose the price of a slice of pizza increased from $2 in 2009 to $2.25 in 2010, and then to $3 in 2011.
A) Compute the percentage change in the price of a slice of pizza between 2009 and 2011.
B) Compute the simple price index for 2011 if 2009 is the base year.
C) Compute the simple price index for 2009 if 2010 is the base year.

Accepted Answer

a. 50%
b.

Question 4

Which of the following statements is true of investment returns?

Accepted Answer

A)  A change in the price of the underlying asset usually has no impact on returns to investment. 
B)  Income yield always accounts for the bulk of the returns from an investment. 
C)  The higher the price of the asset during the time of purchase, the lower the returns from that investment. 
D)  The higher the income yield, the lower the overall returns from that investment. 
A)  A change in the price of the underlying asset usually has no impact on returns to investment. 
B)  Income yield always accounts for the bulk of the returns from an investment. 
C)  The higher the price of the asset during the time of purchase, the lower the returns from that investment. 
D)  The higher the income yield, the lower the overall returns from that investment.

Question 5

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 weighted aggregate price index for Lindsay's portfolio for 2007, using 2005 as the base year?

Accepted Answer

A)  206.32 
B)  177.38 
C)  116.31 
D)  237.53 
A)  206.32 
B)  177.38 
C)  116.31 
D)  237.53

Question 6

Three firms, X, Y, and Z, operate in the same industry, although their products have different features and are priced differently. The following table provides the prices and the quantities sold (in units) during the period 2000 to 2002.   Which of the following is the Laspeyres price index for 2001, using 2000 as the base year?

Accepted Answer

A)  95.64 
B)  113.60 
C)  104.56 
D)  105.19 
A)  95.64 
B)  113.60 
C)  104.56 
D)  105.19

Question 7

Firms A, B, and C operate in the market for computers. Each firm's product is popular in the market and distinct from what the other firms offer. The following table shows the prices of laptops from 2005 through 2007.   Suppose this data was collected from a particular town, where people have a preference for firm C's laptops. If 2005 is used as the base year, which of the following statements will be true?

Accepted Answer

A)  The unweighted price index for 2007 understates the fall in the prices of laptops. 
B)  The unweighted price index for 2006 overstates the fall in the prices of laptops. 
C)  The unweighted price index should only use the data for laptops produced by firms A and B to provide an accurate picture of the change in prices. 
D)  The unweighted price index will better reflect the change in prices over these years than a weighted price index. 
A)  The unweighted price index for 2007 understates the fall in the prices of laptops. 
B)  The unweighted price index for 2006 overstates the fall in the prices of laptops. 
C)  The unweighted price index should only use the data for laptops produced by firms A and B to provide an accurate picture of the change in prices. 
D)  The unweighted price index will better reflect the change in prices over these years than a weighted price index.

Question 8

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

Accepted Answer

A)  The Laspeyres index is more expensive to compute than the Paasche index. 
B)  The data requirements are more stringent for the Laspeyres index than for the Paasche index. 
C)  Unlike the Laspeyres index, the Paasche index incorporates current expenditure patterns of consumers. 
D)  Unlike the Paasche index, the Laspeyres index requires that the weights be updated each year and the index numbers be recomputed for all of the previous years. 
A)  The Laspeyres index is more expensive to compute than the Paasche index. 
B)  The data requirements are more stringent for the Laspeyres index than for the Paasche index. 
C)  Unlike the Laspeyres index, the Paasche index incorporates current expenditure patterns of consumers. 
D)  Unlike the Paasche index, the Laspeyres index requires that the weights be updated each year and the index numbers be recomputed for all of the previous years.

Question 9

Rates of return expressed in nominal terms do not represent a true picture because they are not adjusted for inflation.

Accepted Answer

A) True 
 B)False

Question 10

Joanna Robertson bought a share of XYZ Corp. at $200 last year. She was paid a dividend of $30 during the same year. However, the same share is trading at $280 this year. Calculate Joanna's income percent yield from holding the share for a year.

Accepted Answer

A)  15% 
B)  40% 
C)  55% 
D)  30% 
A)  15% 
B)  40% 
C)  55% 
D)  30%

Question 11

An investor bought 1,000 shares of Citigroup in January 2009 for $3.55 a share. She sold all of her shares in December 2009 for $3.31 a share. The inflation rate for 2009 was −0.35%. Which of the following is the investor's real rate of return?

Accepted Answer

A)  −6.43% 
B)  −6.76% 
C)  −5.12% 
D)  6.43% 
A)  −6.43% 
B)  −6.76% 
C)  −5.12% 
D)  6.43%

Question 12

Jake Morris invested $150 in buying a share of ABC Corp. a year back, on which he received a dividend of $20. Now when the share is trading at a different price, Jake computes his investment return to be 10%.
A) Compute Jake's income yield from this investment.
B) What is the current price of the share?
C) Interpret the result.

Accepted Answer

a. 13.33%
b. $145
c. Because income yiel

Question 13

Hugh Wallace has the following information regarding three investment options. Each investment option involves the same one-year period.   What real percent rate of return will Hugh earn if he invests in option 2?

Accepted Answer

A)  −2.5% 
B)  4.58% 
C)  0.96% 
D)  −3.37% 
A)  −2.5% 
B)  4.58% 
C)  0.96% 
D)  −3.37%

Question 14

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

Accepted Answer

A)  98.48 
B)  101.54 
C)  109.5 
D)  102.58 
A)  98.48 
B)  101.54 
C)  109.5 
D)  102.58

Question 15

Kim Back invested $20,000 one year in corporate bonds. Each bond sold for $1,000 and earned a coupon payment of $80 each during the year. The price of the bond at the end of the year dropped to $980. Which of the following is Kim's total dollar gain or loss on her investment?

Accepted Answer

A)  $1,600 
B)  −$400 
C)  $1,200 
D)  $1,000 
A)  $1,600 
B)  −$400 
C)  $1,200 
D)  $1,000

Question 16

Consider the following price (in dollars) and quantity data for two items during 2010 and 2011.   If the value of the Laspeyres price index for 2011, using 2010 as the base year, is 89.46, find the price of item 1 in 2011.

Accepted Answer

The answer of Consider the following price (in dollars) and...

Question 17

Tammy Welsh has two investment options to choose from. The stocks of both ABC Inc. and XYZ Corp. are currently trading at $200. ABC Inc. is paying a dividend of $10, and is expected to trade at $215 in a year's time. XYZ Corp. is paying a higher dividend of $25. However, the price of XYZ's stock is only expected to go up to $203 a year from now. Experts are estimating inflation to be about 2% in a year's time.
A) In which stock should Tammy invest and why?
B) If the expected inflation rate was revised to 2.5%, would it alter Tammy's choice? Explain your answer.

Accepted Answer

a. Tammy should invest in XYZ Corp. beca

Question 18

The following table provides the prices of the tickets for three types of water rides at an amusement park.   a. Compute the unweighted aggregate price index for 2010, using 2009 as the base year.
B) Compute the unweighted aggregate price index for 2011, using 2010 as the base year.

Accepted Answer

The answer of The following table provides the prices of...

Question 19

Firms A, B, and C operate in the market for computers. Each firm's product is popular in the market and is distinct from what the other firms offer. The following table shows the prices of laptops from 2005 through 2007.   Which of the following is the unweighted price index for the total price of three types of laptops in 2006, using 2005 as the base year?

Accepted Answer

A)  96.63 
B)  103.48 
C)  91.83 
D)  100.96 
A)  96.63 
B)  103.48 
C)  91.83 
D)  100.96

Question 20

An unweighted price index for different types of properties will unfairly treat all property prices equally.

Accepted Answer

A) True 
 B)False

Because both the Laspeyres and Paasche indices are weighted aggregate price indices, they will yield the same value for a given evaluation period.

The Consumer Price Index (CPI) and the Producer Price Index (PPI) must always move in sync with each other.

Which of the following statements is true of investment returns?

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

Rates of return expressed in nominal terms do not represent a true picture because they are not adjusted for inflation.

Joanna Robertson bought a share of XYZ Corp. at $200 last year. She was paid a dividend of $30 during the same year. However, the same share is trading at $280 this year. Calculate Joanna's income percent yield from holding the share for a year.

An investor bought 1,000 shares of Citigroup in January 2009 for $3.55 a share. She sold all of her shares in December 2009 for $3.31 a share. The inflation rate for 2009 was −0.35%. Which of the following is the investor's real rate of return?

Hugh Wallace has the following information regarding three investment options. Each investment option involves the same one-year period. What real percent rate of return will Hugh earn if he invests in option 2?

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

Kim Back invested $20,000 one year in corporate bonds. Each bond sold for $1,000 and earned a coupon payment of $80 each during the year. The price of the bond at the end of the year dropped to $980. Which of the following is Kim's total dollar gain or loss on her investment?

Consider the following price (in dollars) and quantity data for two items during 2010 and 2011. If the value of the Laspeyres price index for 2011, using 2010 as the base year, is 89.46, find the price of item 1 in 2011.

The following table provides the prices of the tickets for three types of water rides at an amusement park. a. Compute the unweighted aggregate price index for 2010, using 2009 as the base year. B) Compute the unweighted aggregate price index for 2011, using 2010 as the base year.

An unweighted price index for different types of properties will unfairly treat all property prices equally.

Statistics and Data

Tabular and Graphical Methods

Numerical Descriptive Measures

Introduction to Probability

Discrete Probability Distributions

Continuous Probability Distributions

Sampling and Sampling Distributions

Interval Estimation

Hypothesis Testing

Statistical Inference Concerning Two Populations

Statistical Inference Concerning Variance

Chi-Square Tests

Analysis of Variance

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Exam 19: Returns, Index Numbers, and Inflation

Because both the Laspeyres and Paasche indices are weighted aggregate price indices, they will yield the same value for a given evaluation period.

The Consumer Price Index (CPI) and the Producer Price Index (PPI) must always move in sync with each other.

Which of the following statements is true of investment returns?

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

Rates of return expressed in nominal terms do not represent a true picture because they are not adjusted for inflation.

Joanna Robertson bought a share of XYZ Corp. at $200 last year. She was paid a dividend of $30 during the same year. However, the same share is trading at $280 this year. Calculate Joanna's income percent yield from holding the share for a year.

An investor bought 1,000 shares of Citigroup in January 2009 for $3.55 a share. She sold all of her shares in December 2009 for $3.31 a share. The inflation rate for 2009 was −0.35%. Which of the following is the investor's real rate of return?

Hugh Wallace has the following information regarding three investment options. Each investment option involves the same one-year period. What real percent rate of return will Hugh earn if he invests in option 2?

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

Kim Back invested $20,000 one year in corporate bonds. Each bond sold for $1,000 and earned a coupon payment of $80 each during the year. The price of the bond at the end of the year dropped to $980. Which of the following is Kim's total dollar gain or loss on her investment?

Consider the following price (in dollars) and quantity data for two items during 2010 and 2011. If the value of the Laspeyres price index for 2011, using 2010 as the base year, is 89.46, find the price of item 1 in 2011.

The following table provides the prices of the tickets for three types of water rides at an amusement park. a. Compute the unweighted aggregate price index for 2010, using 2009 as the base year. B) Compute the unweighted aggregate price index for 2011, using 2010 as the base year.

An unweighted price index for different types of properties will unfairly treat all property prices equally.

Statistics and Data

Tabular and Graphical Methods

Numerical Descriptive Measures

Introduction to Probability

Discrete Probability Distributions

Continuous Probability Distributions

Sampling and Sampling Distributions

Interval Estimation

Hypothesis Testing

Statistical Inference Concerning Two Populations

Statistical Inference Concerning Variance

Chi-Square Tests

Analysis of Variance

Regression Analysis

Inference With Regression Models

Regression Models for Nonlinear Relationships

Regression Models With Dummy Variables

Time Series and Forecasting

Nonparametric Tests

Filters