Question 1

A Paasche index with updated weights:

Accepted Answer

A) is likely to produce a lower estimate than a Laspeyres index when prices are increasing. 
B) uses the current period quantities as weights as opposed to the base period quantities used in the Paasche index which does not use updated weights. 
C) is likely to produce a lower estimate than a Laspeyres index when prices are decreasing. 
D) accounts for inflation but fails to account for changing consumption patterns over time. 
A) is likely to produce a lower estimate than a Laspeyres index when prices are increasing. 
B) uses the current period quantities as weights as opposed to the base period quantities used in the Paasche index which does not use updated weights. 
C) is likely to produce a lower estimate than a Laspeyres index when prices are decreasing. 
D) accounts for inflation but fails to account for changing consumption patterns over time.

Question 2

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 3

The only possible income from an investment is the direct cash payment from the underlying asset.

Accepted Answer

A) True 
 B)False

Question 4

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.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 5

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.

Accepted Answer

A) 7.14% 
B) 21.43% 
C) 28.57% 
D) 14.29% 
A) 7.14% 
B) 21.43% 
C) 28.57% 
D) 14.29%

Question 6

Rita Jacob purchased a corporate bond at $650 a year ago.The price of the bond has now increased to $665.
A)What is Rita's capital gains yield from this investment?
B)If her investment return is 7 percent,what coupon payment must she have received?

Accepted Answer

a.2.31%
b.

Question 7

The price of a basket of goods in 2000 was $500.If the same basket cost $600 in 2002,identify the correct statement from the following.

Accepted Answer

A) The price index in 2002 must have been a 100 points higher than in 2000. 
B) The price increase between 2000 and 2002 was 10%. 
C) If 2000 is considered as the base year,then the price index in 2002 must be 120. 
D) If 2002 is considered the base year,then the price index in 2000 must have been 70. 
A) The price index in 2002 must have been a 100 points higher than in 2000. 
B) The price increase between 2000 and 2002 was 10%. 
C) If 2000 is considered as the base year,then the price index in 2002 must be 120. 
D) If 2002 is considered the base year,then the price index in 2000 must have been 70.

Question 8

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.

Accepted Answer

A) True 
 B)False

Question 9

If the nominal rate of return is positive,then the real rate of return must also be positive.

Accepted Answer

A) True 
 B)False

Question 10

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 Paasche Index for 2001 if the base period is 2000 and the current period is 2002.

Accepted Answer

A) 105.12 
B) 94.11 
C) 92.85 
D) 98.92 
A) 105.12 
B) 94.11 
C) 92.85 
D) 98.92

Question 11

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.

Accepted Answer

a.98.82
b.The value of the Las

Question 12

Alex Aliyev is a primary school teacher.When he started working in 2004,he was earning an annual salary of $36,000.In 2011,his salary was $48,000.The consumer price indices for 2004 and 2011 were 108 and 120,respectively.
A)Compute the nominal increase in Alex's salary between 2004 and 2011.
B)Compute the real increase in Alex's salary between 2004 and 2011.
C)Interpret the result.

Accepted Answer

a.33.33%
b.20%
c.Although Alex's nominal

Question 13

Exhibit 19-3.Consider the following information about the price and the price index of a popular book over three years.   Refer to Exhibit 19-3.What was the approximate price of the book in 2011?

Accepted Answer

A) $10 
B) $10.80 
C) $8.10 
D) $10.69 
A) $10 
B) $10.80 
C) $8.10 
D) $10.69

Question 14

Gulten started her career with an annual salary of $82,000 in 2006.Five years later,in 2011,her salary had increased to $85,000 a year.If the values of the CPI (with a base of 1982-1984)for 2006 and 2011 are 201.6 and 224.9,respectively,compute the increase in Gulten's real income.

Accepted Answer

A) -7.08 percent 
B) 3.66 percent 
C) 15.68 percent 
D) 92.92 percent 
A) -7.08 percent 
B) 3.66 percent 
C) 15.68 percent 
D) 92.92 percent

Question 15

Consider the following table that provides the simple price indices for an item from 2006 through 2008.   a.If the price of the good in 2006 was $8,compute the price in 2008.
B)If the base year is changed to 2007,compute the value of the simple price index in 2008.

Accepted Answer

The answer of Consider the following table that provides the...

Question 16

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.

Accepted Answer

a.98.60
b.The value of the Paa

Question 17

Which of the following correctly identifies the expression for calculating the inflation rate for period t,based on the CPI?

Accepted Answer

A)    
B)    
C)    
D)    
A)    
B)    
C)    
D)

Question 18

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 the investment percent yield if Joanna sells the share at $280.

Accepted Answer

A) 70% 
B) 110% 
C) 15% 
D) 55% 
A) 70% 
B) 110% 
C) 15% 
D) 55%

Question 19

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 20

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

Accepted Answer

A) True 
 B)False

A Paasche index with updated weights:

Which of the following statements is true of investment returns?

The only possible income from an investment is the direct cash payment from the underlying asset.

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.

Rita Jacob purchased a corporate bond at $650 a year ago.The price of the bond has now increased to $665. A)What is Rita's capital gains yield from this investment? B)If her investment return is 7 percent,what coupon payment must she have received?

The price of a basket of goods in 2000 was $500.If the same basket cost $600 in 2002,identify the correct statement from the following.

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.

If the nominal rate of return is positive,then the real rate of return must also be positive.

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.

Exhibit 19-3.Consider the following information about the price and the price index of a popular book over three years. Refer to Exhibit 19-3.What was the approximate price of the book in 2011?

Gulten started her career with an annual salary of $82,000 in 2006.Five years later,in 2011,her salary had increased to $85,000 a year.If the values of the CPI (with a base of 1982-1984)for 2006 and 2011 are 201.6 and 224.9,respectively,compute the increase in Gulten's real income.

Consider the following table that provides the simple price indices for an item from 2006 through 2008. a.If the price of the good in 2006 was $8,compute the price in 2008. B)If the base year is changed to 2007,compute the value of the simple price index in 2008.

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.

Which of the following correctly identifies the expression for calculating the inflation rate for period t,based on the CPI?

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 the investment percent yield if Joanna sells the share at $280.

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.

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

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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

A Paasche index with updated weights:

Which of the following statements is true of investment returns?

The only possible income from an investment is the direct cash payment from the underlying asset.

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.

Rita Jacob purchased a corporate bond at $650 a year ago.The price of the bond has now increased to $665. A)What is Rita's capital gains yield from this investment? B)If her investment return is 7 percent,what coupon payment must she have received?

The price of a basket of goods in 2000 was $500.If the same basket cost $600 in 2002,identify the correct statement from the following.

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.

If the nominal rate of return is positive,then the real rate of return must also be positive.

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.

Exhibit 19-3.Consider the following information about the price and the price index of a popular book over three years. Refer to Exhibit 19-3.What was the approximate price of the book in 2011?

Gulten started her career with an annual salary of $82,000 in 2006.Five years later,in 2011,her salary had increased to $85,000 a year.If the values of the CPI (with a base of 1982-1984)for 2006 and 2011 are 201.6 and 224.9,respectively,compute the increase in Gulten's real income.

Consider the following table that provides the simple price indices for an item from 2006 through 2008. a.If the price of the good in 2006 was $8,compute the price in 2008. B)If the base year is changed to 2007,compute the value of the simple price index in 2008.

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.

Which of the following correctly identifies the expression for calculating the inflation rate for period t,based on the CPI?

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 the investment percent yield if Joanna sells the share at $280.

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.

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

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