Question 1

There is no need to have a constant base value for a price index.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following types of returns captures the changes in purchasing power?

Accepted Answer

A) Nominal returns 
B) Real returns 
C) Income yield 
D) Capital gains yield 
A) Nominal returns 
B) Real returns 
C) Income yield 
D) Capital gains yield

Question 3

Price indices are used to remove the effect of inflation so that business and economic time series can be evaluated in a more meaningful way.

Accepted Answer

A) True 
 B)False

Question 4

The following table provides the values of the simple price index for watches in a country.   If the base year is revised from 2006 to 2007,calculate the updated index for 2008.

Accepted Answer

A) 113.5 
B) 96.77 
C) 95.24 
D) 103.33 
A) 113.5 
B) 96.77 
C) 95.24 
D) 103.33

Question 5

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 quantity...

Question 6

Exhibit 19-5.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.   Refer to Exhibit 19-5.Compute the unweighted price index for the 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 7

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)Which stock should Tammy invest in 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 8

The income yield from a one-year infrastructure bond purchased today is 0.5%.Compute the real return from this bond if the inflation rate a year later is expected to be 4% and the capital gains yield is zero.

Accepted Answer

The answer of The income yield from a one-year infrastructure...

Question 9

Nicole Watson purchased a share of McAllister Inc. ,a year back when it was trading at $75.She also earned a dividend of $4 on this.The price of the same share has now increased to $87.
A)Compute the annual capital gain from this share.
B)Compute the annual income yield from this share.

Accepted Answer

The answer of Nicole Watson purchased a share of McAllister...

Question 10

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.

Accepted Answer

Yes,Amy was better off in 2011

Question 11

Exhibit 19-1.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. Refer to Exhibit 19-1.Calculate Joanna's capital gains percent yield if she sells the shares at $280.

Accepted Answer

A) 80% 
B) 15% 
C) 40% 
D) 28.57% 
A) 80% 
B) 15% 
C) 40% 
D) 28.57%

Question 12

Consider the following price (in dollars)and quantity data for two items during 2010 and 2011.   If the value of the Paasche price index for 2011 is 90.61 (base year 2010),find the price of item 2 in 2010.

Accepted Answer

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

Question 13

The following table provides the adjusted close prices of the shares of firm X for three consecutive months of the last year.   a.Compute the monthly return for May.
B)Compute the monthly return for June.

Accepted Answer

The answer of The following table provides the adjusted close...

Question 14

If the price index for a particular year is 75,it implies that:

Accepted Answer

A) prices have increased by 7.5% over the base year. 
B) prices have increased by 0.75% over the base year. 
C) prices have decreased by 0.25% compared to the base year. 
D) prices have decreased by 25% compared to the base year. 
A) prices have increased by 7.5% over the base year. 
B) prices have increased by 0.75% over the base year. 
C) prices have decreased by 0.25% compared to the base year. 
D) prices have decreased by 25% compared to the base year.

Question 15

Consider the following table providing the prices for three different brands of chocolate-chip cookies during 2009-2010 in a particular country.(Prices are in the country's local currency. )   
a.Compute the unweighted aggregate price index for 2010,using 2009 as the base year.
B)Interpret the result.

Accepted Answer

a.75.47
b.The table shows that the price

Question 16

Sales revenue of firm X was $10 million in 2007.In 2010,the same firm reported higher sales revenue of $15 million.The producer price indices for 2007 and 2010 were 130 and 135.
A)Compute the nominal increase in sales revenue between 2007 and 2010.
B)Compute the real increase in sales revenue between 2007 and 2010.

Accepted Answer

The answer of Sales revenue of firm X was $10...

Question 17

Which of the following statements is true of the Consumer Price Index (CPI)?

Accepted Answer

A) It uses the same basket of goods and services as the Producer Price Index. 
B) The quantities of items in the current year are used for computing the weights for the index. 
C) It is an unweighted price index used to measure inflation. 
D) It is based on the prices paid by urban consumers for a representative basket of goods and services. 
A) It uses the same basket of goods and services as the Producer Price Index. 
B) The quantities of items in the current year are used for computing the weights for the index. 
C) It is an unweighted price index used to measure inflation. 
D) It is based on the prices paid by urban consumers for a representative basket of goods and services.

Question 18

Exhibit 19-7.The following table shows the value of CPI for three years in a country.   Refer to Exhibit 19-7.Compute the annual inflation rate for 2004.

Accepted Answer

A) 4% 
B) 1.46% 
C) 3.36% 
D) 4.87% 
A) 4% 
B) 1.46% 
C) 3.36% 
D) 4.87%

Question 19

Exhibit 19-6.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 2000-2002.   Refer to Exhibit 19-6.Compute the Laspeyres price index for 2002,using 2000 as the base year.

Accepted Answer

A) 106.07 
B) 106.3 
C) 94.28 
D) 94.08 
A) 106.07 
B) 106.3 
C) 94.28 
D) 94.08

Question 20

Since 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

There is no need to have a constant base value for a price index.

Which of the following types of returns captures the changes in purchasing power?

Price indices are used to remove the effect of inflation so that business and economic time series can be evaluated in a more meaningful way.

The following table provides the values of the simple price index for watches in a country. If the base year is revised from 2006 to 2007,calculate the updated index for 2008.

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 income yield from a one-year infrastructure bond purchased today is 0.5%.Compute the real return from this bond if the inflation rate a year later is expected to be 4% and the capital gains yield is zero.

Nicole Watson purchased a share of McAllister Inc. ,a year back when it was trading at $75.She also earned a dividend of $4 on this.The price of the same share has now increased to $87. A)Compute the annual capital gain from this share. B)Compute the annual income yield from this share.

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.

Exhibit 19-1.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. Refer to Exhibit 19-1.Calculate Joanna's capital gains percent yield if she sells the shares at $280.

Consider the following price (in dollars)and quantity data for two items during 2010 and 2011. If the value of the Paasche price index for 2011 is 90.61 (base year 2010),find the price of item 2 in 2010.

The following table provides the adjusted close prices of the shares of firm X for three consecutive months of the last year. a.Compute the monthly return for May. B)Compute the monthly return for June.

If the price index for a particular year is 75,it implies that:

Consider the following table providing the prices for three different brands of chocolate-chip cookies during 2009-2010 in a particular country.(Prices are in the country's local currency. ) a.Compute the unweighted aggregate price index for 2010,using 2009 as the base year. B)Interpret the result.

Which of the following statements is true of the Consumer Price Index (CPI)?

Exhibit 19-7.The following table shows the value of CPI for three years in a country. Refer to Exhibit 19-7.Compute the annual inflation rate for 2004.

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

Statistics and Data

Tabular and Graphical Methods

Numerical Descriptive Measures

Basic Probability Concepts

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

There is no need to have a constant base value for a price index.

Which of the following types of returns captures the changes in purchasing power?

Price indices are used to remove the effect of inflation so that business and economic time series can be evaluated in a more meaningful way.

The following table provides the values of the simple price index for watches in a country. If the base year is revised from 2006 to 2007,calculate the updated index for 2008.

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 income yield from a one-year infrastructure bond purchased today is 0.5%.Compute the real return from this bond if the inflation rate a year later is expected to be 4% and the capital gains yield is zero.

Nicole Watson purchased a share of McAllister Inc. ,a year back when it was trading at $75.She also earned a dividend of $4 on this.The price of the same share has now increased to $87. A)Compute the annual capital gain from this share. B)Compute the annual income yield from this share.

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.

Exhibit 19-1.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. Refer to Exhibit 19-1.Calculate Joanna's capital gains percent yield if she sells the shares at $280.

Consider the following price (in dollars)and quantity data for two items during 2010 and 2011. If the value of the Paasche price index for 2011 is 90.61 (base year 2010),find the price of item 2 in 2010.

The following table provides the adjusted close prices of the shares of firm X for three consecutive months of the last year. a.Compute the monthly return for May. B)Compute the monthly return for June.

If the price index for a particular year is 75,it implies that:

Consider the following table providing the prices for three different brands of chocolate-chip cookies during 2009-2010 in a particular country.(Prices are in the country's local currency. ) a.Compute the unweighted aggregate price index for 2010,using 2009 as the base year. B)Interpret the result.

Which of the following statements is true of the Consumer Price Index (CPI)?

Exhibit 19-7.The following table shows the value of CPI for three years in a country. Refer to Exhibit 19-7.Compute the annual inflation rate for 2004.

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

Statistics and Data

Tabular and Graphical Methods

Numerical Descriptive Measures

Basic Probability Concepts

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