Semester “Spring 2010”

“Money & Banking (Mgt 411)”

Question 01
Part A
Calculate consumer price index and inflation rate by using following data. (Marks 4)

Years Cost of Basket CPI Inflation rate

2006 2000 100 N.A
2007 2300 115 15%
2008 2850 142.5 27.5%

Part B
Calculate GDP deflator and inflation rate by using following data. (Marks 4)

Years Nominal GDP Real GDP GDP Deflator Inflation rate

2006 78000 78000 100 N.A
2007 82000 80000 102.5 2.5%
2008 89000 85000 104.7 2.2%

Part C
Which of the following accounts will include in M1 & M2? Identify separately.
(Marks 2)
• Euro dollars (M3)
• Current account balances in Pakistan (M1)
• ATM cards balances in Pakistan (M1)
• Banks Saving accounts in Pakistan (M2)
• Individual money market mutual fund (M2)
• Institutional money market mutual fund share (M2)

Question 02
Part A
An investor deposits Rs.100,000 today in a bank and bank offers 5% interest rate per
annum compounded quarterly. What will be the amount after 10 years? (Marks 5)

Solution:
Formoula:
Compound Interest: FV = PV (1 + i)n
Where
FV = Future Value
PV = Present Value
I = Interest rate
N = Number of Years

FV = 1,00,000 (1 + 0.05/4) 4(10)

FV = 1,00,000 (1 + 0.0125)40
FV = 164361.95

Answer: 164361.95
Part B
A student needs Rs 200,000 after 5 year for his study. What amount he has to deposit in a
bank today so that he will have Rs 200,000 after 5 years if bank offers yearly 6% interest
rate compounded semi-annually. (Marks 5)

FV = PV (1 + i)n
FV__
(1 + i)n
FV = 200,000
I = 6% semi- annually
N=5

PV = 200,000/(1 + 0.06/2)2(5)
PV = 200,000/1.344
PV = 148,818.78