MGT411 Money & Banking Assignment No.1 Solution Spring Semester 2013

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MGT411 Money & Banking Assignment No.1 Solution Spring Semester 2013

SEMESTER SPRING 2013
MONEY & BANKING (MGT411)
ASSIGNMENT NO. 01
DUE DATE: MAY 06, 2013
MARKS: 20
ASSIGNMENT:
Learning Objectives:
• The first question will enable the students to understand two different methods, to measure inflation rate from consumer perspective as well as the producer prospective.
• The second question will enable the students to understand and implement the concept
of Time Value of Money from individual’s financial planning perspective.

CASE:
Inflation is a concept that always remains the key issue in every era of human kind. It is a
situation where the prices of the commodities go high and high. It is very important for both the
economists and the financial wizards for multiple reasons. Economists remain concerned about
it for the reason that they need to consider the prices of all the commodities and the situation
of market for all the masses and organizations. Financial managers also remain concerned about
it for the reason as their utmost concern is to manage and balance their records of financial
transactions. It is due to inflation that the prices of commodities vary from time to time and the
quantity of money necessary to purchase a product one day may not be enough to buy the same quantity some other day. Therefore organizations need to frugally play their cards so that they may invest money and their investment and calculations may help them in the long run as well.
Sr no Basket Kg Prices(2010) prices (2011 prices(2012
1 wheat 2 50 52 55
2 wheat flour 2 60 58 65
3 rice basmti broken 2 90 85 95
4 rice irri -6 2 70 65 75
5 masur pulse washed 1 120 125 125
6 moong pulse washed 1 140 140 145
7 mash pulse washed 1 170 170 175
8 gram pulse washed 1 70 70 70
9 beef 1 210 215 210
10 mutton 1 380 385 390

other figures includes: basket kg 2010rs(bn.) 2011 rs (bn.) 2012 rs (bn.)
11 nominal GDP 180 215 245
12 real GDP 165 195 220

Question 1
After analyzing the above tables, you are required to calculate the inflation rate of year
2012(from consumption and production prospective), considering the “preceding year” as base
year. (10 marks)
Question 2
a. 20 years ago, your father invested an amount at 5% interest. Now he gave you received
amount Rs. 8, 00,000. You are planning to purchase your Dream House after 15 years.
• Today, you invest the amount at 15 %, given to you by your father.
• 2 years back you won a lottery of Rs. 2, 00, 000 which you had invested
immediately at 10% interest for your Dream.
You will be able to purchase your Dream house with receiving of the two investments and make
your dream comes true exactly according to your planning.
Calculate the amount which was invested by your father? What is the cost of your Dream
House? (5 marks)
b. Today, your brother invested the amount of Rs. 10, 000 at 9 % interest for 10 years. You
are interested to have the same amount as your brother at the end of 10 years, but you have
only one option of 7.5 % interest. How much more money, you will need to invest to get the
same amount at the end of 10 years like your brother. (5 marks)