Mathematics of FinanceMCQMTP Oct 21Question 1579 of 512
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The nominal rate of growth is 17%\displaystyle 17\% and inflation is 9%\displaystyle 9\% for the five years. Let P\displaystyle P be the Gross Domestic Product (GDP) amount at the present year then the projected real GDP after 6\displaystyle 6 years is

Options

A1.587P\displaystyle 1.587P
B1.921P\displaystyle 1.921P
C1.403P\displaystyle 1.403P
D2.51P\displaystyle 2.51P
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Correct Answer

Option a1.587P\displaystyle 1.587P

All Options:

  • A1.587P\displaystyle 1.587P
  • B1.921P\displaystyle 1.921P
  • C1.403P\displaystyle 1.403P
  • D2.51P\displaystyle 2.51P

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Detailed Solution & Explanation

The nominal rate of growth is 17%\displaystyle 17\% and inflation is 9%\displaystyle 9\%. The projected real GDP after 6\displaystyle 6 years can be calculated by adjusting the nominal GDP growth for inflation. Using the simple real growth rate approximation (17%9%=8%\displaystyle 17\% - 9\% = 8\%): Real GDP6=P(1+0.08)6=P(1.08)61.587P\text{Real GDP}_6 = P (1 + 0.08)^6 = P (1.08)^6 \approx 1.587 P Hence, **Option A** is the correct answer.

About This Chapter: Mathematics of Finance

Paper

Paper 3: Quantitative Aptitude

Weightage

12-16 Marks

Key Topics

Simple & Compound Interest, Annuity, Perpetuity

The most important mathematical chapter in the entire syllabus. It covers Simple Interest (SI), Compound Interest (CI), Nominal vs Effective rates, Present and Future Value, Annuities (Ordinary and Due), Sinking Funds, and Perpetuities. The concepts learned here are applied heavily in CA Intermediate and Final.

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