Mathematics for FinancePYQ July 21Question 1550 of 512
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If the nominal rate of growth is 17%\displaystyle 17\% and inflation is 9%\displaystyle 9\% for the five years. Let P be the Gross Domestic Product (GDP) amount at the present year then the projected real GDP after 6\displaystyle 6 years is:

Options

A1.58\displaystyle 1.58 P
B1.921\displaystyle 1.921 P
C1.403\displaystyle 1.403 P
D2.51\displaystyle 2.51 P
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Correct Answer

✅ Option a — 1.58\displaystyle 1.58 P

All Options:

  • A1.58\displaystyle 1.58 P
  • B1.921\displaystyle 1.921 P
  • C1.403\displaystyle 1.403 P
  • D2.51\displaystyle 2.51 P

Detailed Solution & Explanation

The projected real GDP after 6\displaystyle 6 years can be calculated by adjusting the nominal GDP growth for inflation. The real growth rate rreal\displaystyle r_{\text{real}} is: 1+rreal=1+nominal growth rate1+inflation rate=1+0.171+0.09=1.171.09≈1.0733941 + r_{\text{real}} = \frac{1 + \text{nominal growth rate}}{1 + \text{inflation rate}} = \frac{1 + 0.17}{1 + 0.09} = \frac{1.17}{1.09} \approx 1.073394 rreal≈7.3394%r_{\text{real}} \approx 7.3394\% The projected real GDP after 6\displaystyle 6 years is: GDP6=P(1+rreal)6=P(1.073394)6≈1.528P\text{GDP}_6 = P (1 + r_{\text{real}})^6 = P (1.073394)^6 \approx 1.528 P Alternatively, using simple subtraction for the real growth rate (17%−9%=8%\displaystyle 17\% - 9\% = 8\%): GDP6=P(1+0.08)6=P(1.08)6≈1.587P\text{GDP}_6 = P (1 + 0.08)^6 = P (1.08)^6 \approx 1.587 P This matches Option A. Hence, **Option A** is the correct answer.

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