Exam 19: Returns, Index Numbers and Inflation

The following table provides the prices of a good over three consecutive years. a.Compute the simple price index for 2010 using 2009 as the base year. B)If the base year is changed to 2010,compute the simple price index for 2011.

Jones Inc. ,a company manufacturing drills,earned a revenue of $5 million in 2011.This was 6% more than their revenue in 2009.The CPI for 2009 and 2011 was 115 and 122 respectively,while the PPI for 2009 and 2011 was 110 and 114 respectively.Which of the following accurately reflects the real growth in revenues between 2009 and 2011?

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.

If the price index for a particular year is 110,it implies that:

Exhibit 19-2.Hugh Wallace has the following information regarding three investment options.Each investment option involves the same one-year period. Refer to Exhibit 19-2.Which of the following statements regarding these investment options is true?

The Laspeyres price index uses the quantities evaluated in the base period to compute the weighted aggregate price index.

The following table provides the prices of three brands of a good during 2009 and 2010. a.Compute the unweighted aggregate price index for 2010,with 2009 as the base year. B)Interpret the result. C)Is the result an accurate representation of the changes?

Donna Warne purchased a share of company X at $700 one year ago.The share is now trading at $850.Calculate the percent capital gain if Donna sells her share at the current price.

When a given time series is adjusted for changes in prices,it is called a(n):

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.If the price index in 2011 was 95 instead of 111.11,it would imply that:

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.

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

Which of the following correctly identifies the Fisher equation?

The weighted aggregate price index assigns a lower weight to the items that are sold in higher quantities.

Calculate the nominal percent return from an investment of $300 in a share whose price increases to $375 after a year.

Using 2008 as the base year,the simple price index for an algebra book in 2009 was computed to be 105.If the price of the book was $50 in 2009,compute the price in the base year.

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 income percent yield from holding the share for a year.

Katie Jones started her career with an annual salary of $30,000 in 2006.Five years later,in 2011,her salary had increased to $55,000 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 Katie's real income.